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Item 1. Business

2021-12-20 compared with 2020-12-11 · 1344 added, 895 removed, 62 unchanged (97% of the section changed)

Medley Capital Corporation is a non-diversified closed end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).

We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011.

The Company has elected, and intends to qualify annually, to be treated for U.S.

federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our first taxable year as a corporation.

We are currently externally managed and advised by our investment adviser, MCC Advisors, pursuant to an investment management agreement.

Effective January 1, 2021, however, we will be internally managed.

See “Business – The Adviser – Internalized Management Structure”.

Our investment objective is to generate current income and capital appreciation by lending directly to privately held middle market companies, primarily through directly originated transactions to help these companies expand their business, refinance and make acquisitions.

Our investment portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, preferred equity and common equity.

In connection with some of our investments, we receive warrants or other equity participation features which we believe will increase the total investment returns.

We believe the middle-market private debt market is undergoing structural shifts that are creating significant opportunities for non-bank lenders and investors.

The underlying drivers of these structural changes include:

reduced participation by banks in the private debt markets, particularly within the middle-market, and demand for private debt created by committed and uninvested private equity capital.

We focus on taking advantage of this structural shift by lending directly to companies that are underserved by the traditional banking system and generally seek to avoid broadly marketed investment opportunities.

We source investment opportunities primarily through direct relationships with financial sponsors, as well as financial intermediaries such as investment banks and commercial banks.

Our investment activities are currently managed by our investment adviser, MCC Advisors, which is registered with the Securities and Exchange Commission (the “SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).

MCC Advisors is an affiliate of Medley and is based in New York.

Our Investment Team, which currently is provided for by MCC Advisors, is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential investments, structuring our investments and monitoring our portfolio companies on an ongoing basis.

MCC Advisors’ team draws on its expertise in lending to predominantly privately held borrowers in a range of sectors, including industrials, and transportation, energy and natural resources, financials and real estate.

In addition, MCC Advisors seeks to diversify our portfolio of loans by company type, asset type, transaction size, industry and geography.

Our current Investment Team has extensive experience in the credit business, including originating, underwriting, principal investing and loan structuring.

Our Adviser, through Medley, has access to over 50 employees, including over 25 investment, origination and credit management professionals, and over 25 operations, marketing and distribution professionals, each with extensive experience in their respective disciplines.

MCC Advisors also currently serves as our administrator and provides us with office space, equipment and other office services.

The responsibilities of our administrator include overseeing our financial records, preparing reports to our stockholders and reports filed with the SEC and generally monitoring the payment of our expenses and the performance of administrative and professional services rendered to us by others.

As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt.

We are permitted to, and expect to continue to, finance our investments through borrowings.

However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after such borrowing.

The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing.

As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage is below 200%, the minimum asset coverage requirement under the 1940 Act.

As a result, the Company is prohibited from making distributions to stockholders, including the payment of any dividend, and may not employ further leverage until the Company’s asset coverage is at least 200% after giving effect to such leverage.

Opportunities for co-investments may arise when MCC Advisors or an affiliated investment adviser becomes aware of investment opportunities that may be appropriate for the Company, other clients, or affiliated funds.

On November 25, 2013, the Company obtained an exemptive order from the SEC that permits us to participate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is Medley, LLC or

an investment adviser controlled by Medley, LLC in a manner consistent with our investment objective, strategies and restrictions, as well as regulatory requirements and other pertinent factors (the “Prior Exemptive Order”).

On March 29, 2017, the Company, MCC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the “Exemptive Order”) that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder.

On October 4, 2017, the Company, MCC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “Current Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly or majority owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act.

Co-investment under the Current Exemptive Order is subject to certain conditions, including the condition that, in the case of each co-investment transaction, our board of directors determines that it would be in our best interest to participate in the transaction.

However, neither we nor the affiliated funds are obligated to invest or co-invest when investment opportunities are referred to us or them.

In situations where co-investment with other funds managed by MCC Advisors or its affiliates is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between our interests and those of other MCC Advisors clients, MCC Advisors will need to decide which client will proceed with the investment.

MCC Advisors will make these determinations based on its policies and procedures, which generally require that such opportunities be offered to eligible accounts on an alternating basis that will be fair and equitable over time.

Moreover, except in certain circumstances, we will be unable to invest in any issuer in which a fund managed by MCC Advisors or its affiliates has previously invested.

Similar restrictions limit our ability to transact business with our officers or directors or their affiliates.

On March 26, 2013, our wholly owned subsidiary, Medley SBIC LP (“SBIC LP”), a Delaware limited partnership, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended.

Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund, LP (“Medley Small Business Fund”).

Corporation (“PhenixFIN”, the “Company,”

“we”

and “us”) is an internally-managed

non-diversified closed-end management investment company incorporated in Delaware that has elected to be regulated as a business

development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).

completed our initial public offering (“IPO”) and commenced operations on January 20, 2011.

The Company has elected, and

intends to qualify annually, to be treated, for U.S.

federal income tax purposes, as a regulated investment company

(“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On November 18,

2020, the board of directors of the Company (the “Board”) approved the adoption of an internalized management structure,

effective January 1, 2021.

Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC

(“MCC Advisors”), pursuant to an investment management agreement.

MCC Advisors is a wholly owned subsidiary of Medley

LLC, which is controlled by Medley Management Inc.

MDLY), a publicly traded asset management firm (“MDLY”), which

in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC.

We use the term

“Medley”

to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group

LLC, MCC Advisors, associated investment funds and their respective affiliates herein.

Since January 1, 2021 the Company has been

managed pursuant to an internalized management structure.

March 26, 2013, our wholly owned subsidiary, Medley SBIC, LP (“SBIC LP”), a Delaware limited partnership that we own directly

and through our wholly owned subsidiary, Medley SBIC GP, LLC, received a license from the Small Business Administration (“SBA”)

to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company

Act of 1958, as amended.

Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund,

In addition, Medley SBIC GP, LLC changed its name to Medley Small Business Fund GP, LLC.

See Note 5 for further information.

Our principal executive office is located at 280 Park Avenue, 6th Floor East, New York, NY 10017 and our telephone number is (212) 759-0777.

Investment Process Overview

We view our current investment process as consisting of three distinct phases described below:

Sourcing and Origination MCC Advisors sources investment opportunities through access to a network of contacts developed in the financial services and related industries by Medley.

It is the Adviser’s responsibility to identify specific opportunities, to refine opportunities through rigorous due diligence of the underlying facts and circumstances while remaining flexible and responsive to client’s needs.

With over 25 investment professionals based in New York involved in sourcing and origination for MCC Advisors, each investment professional is able to maintain long-standing relationships and responsibility for a specified market.

An investment pipeline is maintained to manage all prospective investment opportunities and is reviewed weekly by the Investment Committee of MCC Advisors (“Investment Committee”).

The purpose of the investment pipeline, which is comprised of all prospective investment opportunities at various stages of due diligence and approval, is to evaluate, monitor and approve all of our investments, subject to the oversight of our Investment Committee.

Credit Evaluation We utilize a systematic, consistent approach to credit evaluation developed by Medley, with a particular focus on determining the value of a business in a downside scenario.

The key criteria that we consider and attributes that we seek include:

(i) strong and resilient underlying business fundamentals;

(ii) a substantial equity cushion in the form of capital ranking junior in the right of payment to our investment;

(iii) sophisticated management teams with a minimum operating history of two years;

(iv) a conclusion that overall downside risk is manageable;

(v) collateral support in the form of accounts receivable, inventory, machinery, equipment, real estate, IP, overall enterprise value and other assets;

and (vi) limited requirements for future financing beyond the proposed commitment.

The first review of an opportunity is conducted using the above-mentioned analysis to determine if the opportunity meets MCC Advisors' general investment criteria.

The next three reviews performed by the Investment Committee include the following:

(1) an Early Read Memo, (2) a Green Light Memo, and (3) Investment Committee approval memo.

MCC Advisors maintains a rigorous in-house due diligence process.

Prior to making each investment, MCC Advisors subjects each potential portfolio company to an extensive credit review process, including analysis of market and operational dynamics as well as both historical and projected financial information.

Areas of additional focus include management or sponsor experience, industry and competitive dynamics, and tangible asset values.

Background checks and tax compliance checks are typically required on all portfolio company management teams.

Our due diligence process typically entails:

• negotiation and execution of a term sheet;

• on-site visits;

• interviews with management, employees, customers and vendors;

• review of loan documents and material contracts, as applicable;

• obtaining background checks on all principals/partners/founders;

• completing customer and supplier calls;

• review of tax and accounting issues related to a contemplated capital structure;

• developing a financial model with sensitivity analysis that includes a management case, expected case and downside case;

• receiving third party reports such as environmental, appraisal and consulting reports, as applicable.

Monitoring MCC Advisors views active portfolio monitoring as a vital part of our investment process.

MCC Advisors utilizes an investment management system, which maintains a centralized, dynamic electronic reporting system which houses, organizes and archives all portfolio data by investment.

This is the primary system that tracks all changes to investment terms and conditions.

On a quarterly basis, the asset management team produces a report for each investment within the portfolio by summarizing the investment’s general information, terms and structure, financial performance, covenant package, and business updates.

This feature enables MCC Advisors to track the history of every investment, while maintaining access to the most recent reporting information available, ensuring accurate reporting of the investment.

MCC Advisors will typically require portfolio companies to adhere to certain affirmative covenants requiring the following reports:

monthly or quarterly financial statements annual audits and management letters

monthly or quarterly covenant certificates quarterly industry updates

monthly or quarterly management discussion & analysis quarterly customer and supplier concentration updates

monthly or quarterly bank statements quarterly backlog/pipeline reports

annual insurance certificates annual budgets and forecasts.

MCC Advisors holds regular portfolio reviews where the Investment Committee reviews each transaction in detail and reassesses the risk rating presently assigned.

Rating Criteria In addition to external risk management research and internal monitoring tools, we use an investment rating system to characterize and monitor the credit profile and our expected level of returns on each investment in our portfolio.

Medley Small Business Fund, LP and Medley

Small Business Fund GP, LLC have since changed their names to PhenixFIN Small Business Fund, LP and PhenixFIN Small Business Fund GP,

LLC, respectively.

Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed

as corporations for federal income tax purposes.

These Taxable Subsidiaries allow us to, among other things, hold equity securities of

portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

Company’s investment objective is to generate current income and capital appreciation.

The management team seeks to achieve this

objective primarily through making loans, private equity or other investments in privately-held companies.

The Company may also make

debt, equity or other investments in publicly-traded companies.

(These investments may also include investments in other BDCs, closed-end

funds or real estate investment trusts (“REITs”).) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our

investment objective, such as operating and managing an asset-based lending business.

The portfolio generally consists of senior secured

first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity.

Occasionally,

we will receive warrants or other equity participation features which we believe will have the potential to increase total investment

Our loan and other debt investments are primarily rated below investment grade or are unrated.

Investments in below investment

grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal

believe the private debt market is undergoing structural shifts that are creating significant opportunities for non-bank lenders and

The underlying drivers of these structural changes include reduced participation by banks in the private debt markets and

demand for private debt created by committed and uninvested private equity capital.

We focus on taking advantage of this structural shift

by lending directly to companies that are underserved by the traditional banking system and generally seek to avoid broadly marketed

investment opportunities.

We source investment opportunities primarily through direct relationships with financial sponsors, industry

specialists, as well as financial intermediaries such as investment banks and commercial banks.

Investment Team is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential

investments, structuring our investments and monitoring our portfolio companies on an ongoing basis.

Our Investment Team draws on its

expertise in lending to predominantly privately held borrowers in a range of sectors, including industrials, transportation, energy and

natural resources, financials, gemstones/jewelry and real estate.

In addition, our Investment Team seeks to diversify our portfolio of

loans by company type, asset type, transaction size, industry and geography.

a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt.

We are permitted to, and expect

to continue to, finance our investments through borrowings.

However, as a BDC, we are only generally allowed to borrow amounts such that

our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after

such borrowing.

The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time

of any proposed borrowing.

of September 30, 2021, the Company’s asset coverage was 285.6% after giving effect to leverage and therefore the Company’s

asset coverage was greater than 200%, the minimum asset coverage requirement applicable presently to the Company under the 1940 Act.

Our principal

executive office is located at 445 Park Avenue, 10th Floor, New York, NY and our telephone number is (212) 859-0390.

Process Overview

and Origination .

We typically source investment opportunities through our management team’s network of long-standing relationships.

Our sourcing efforts are led by our senior investment professionals, who leverage their experience in the sourcing and origination of

We use a systematic, consistent approach to credit evaluation, which typically consists of (i) a preliminary due diligence

review conducted by the Company, (ii) an initial diligence meeting with the Company’s management team, investment bank or private equity sponsor,

(iii) an initial indication of interest and terms, and (iv) preparation of memoranda including potential portfolio company overviews,

investment considerations and risks, financial model and return information.

Diligence & Underwriting .

We typically undertake continued diligence, which expands on the investment thesis, risks and mitigants,

and competition factors of our potential investment opportunities.

We may conduct third party reviews, on-site visits and/or background

checks in connection with our potential investments in portfolio companies.

We undertake a proactive monitoring process of our portfolio companies, whereby we conduct monthly financial review and

monitoring of covenants, maintain ongoing dialogue with portfolio company management and owners, and exercise board observer rights where

Criteria We use an investment rating system to characterize and monitor the credit profile and our expected level of returns on each

investment in our portfolio.

We use a five-level numeric rating scale.

The following is a description of the conditions associated with each investment rating:

Rating Definition

The following is a description of the conditions associated with

each investment rating:

Investments that are performing above expectations.

2 Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination.

All new loans are rated ‘2’.

3 Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected.

Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due.

4 Investments that are performing below expectations and for which risk has increased materially since origination.

Some loss of interest or dividend is expected but no loss of principal.

In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).

5 Investments that are performing substantially below expectations and whose risks have increased substantially since origination.

Most or all of the debt covenants are out of compliance and payments are substantially delinquent.

Investments that are performing within expectations,

with risks that are neutral or favorable compared to risks at the time of origination.

All new loans are rated ‘2’.

Investments that are performing below expectations

and that require closer monitoring, but where no loss of interest, dividend or principal is expected.

Companies rated ‘3’

may be out of compliance with financial covenants, however, loan payments are generally not past due.

Investments that are performing below

expectations and for which risk has increased materially since origination.

Some loss of interest or dividend is expected but no

loss of principal.

In addition to the borrower being generally

out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).

Investments that are performing substantially

below expectations and whose risks have increased substantially since origination.

Most or all of the debt covenants are out of compliance

and payments are substantially delinquent.

Some loss of principal is expected.

Investment Committee

The purpose of the Investment Committee, which is comprised of a minimum of three members selected from senior members of MCC Advisors’ Investment Team, is to evaluate and approve all of our investments.

The Investment Committee process is intended to bring the diverse experience and perspectives of the committee’s members to the analysis and consideration of each investment.

The Investment Committee serves to provide investment consistency and adherence to our core investment philosophy and policies.

The Investment Committee also determines appropriate investment sizing and suggests ongoing monitoring requirements.

In addition to reviewing investments, Investment Committee meetings serve as a forum to discuss credit views and outlooks.

Potential transactions and deal flow are reviewed on a regular basis.

Members of the investment team are encouraged to share information and views on credits with the Investment Committee early in their analysis.

We believe this process improves the quality of the analysis and assists the investment team members to work more efficiently.

Each transaction is presented to the Investment Committee in a formal written report.

All of our new investments and the exit or sale of an existing investment must be approved by a majority vote of the Investment Committee, although unanimous agreement is sought.

Investment Structure

Once we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers to structure an investment.

We negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the portfolio company’s capital structure.

We structure our investments, which typically have maturities of three to seven years, as follows:

Senior Secured First Lien Term Loans We structure these investments as senior secured loans.

We obtain security interests in the assets of the portfolio companies that serve as collateral in support of the repayment of such loans.

This collateral generally takes the form of first-priority liens on the assets of the portfolio company borrower.

Our senior secured loans may provide for amortization of principal with the majority of the amortization due at maturity.

Senior Secured Second Lien Term Loans We structure these investments as junior, secured loans.

We obtain security interests in the assets of these portfolio companies that serves as collateral in support of the repayment of such loans.

This collateral generally takes the form of second-priority liens on the assets of a portfolio company.

These loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity.

Senior Secured First Lien Notes We structure these investments as senior secured loans.

We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of such loans.

This collateral generally takes the form of priority liens on the assets of a portfolio company.

These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or ("PIK") interest), with amortization of principal due at maturity.

PIK interest represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term and recorded as interest income on an accrual basis to the extent such amounts are expected to be collected.

Warrants and Minority Equity Securities In some cases, we may also receive nominally priced warrants or options to buy a minority equity interest in the portfolio company in connection with a debt investment.

As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest.

We may structure such warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon the occurrence of specified events.

In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights.

Unitranche Loans We structure our unitranche loans, which combine the characteristics of traditional senior secured first lien term loans and subordinated notes as senior secured loans.

We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans.

This collateral generally takes the form of first-priority liens on the assets of a portfolio company.

Unitranche loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity.

Unsecured Debt We structure these investments as unsecured, subordinated loans that provide for relatively high, fixed interest rates that provide us with significant current interest income.

These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or PIK interest), with amortization of principal due at maturity.

Subordinated notes generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity.

Subordinated notes are generally more volatile than secured loans and may involve a greater risk of loss of principal.

Subordinated notes often include a PIK feature, which effectively operates as negative amortization of loan principal.

We tailor the terms of each investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its operating results.

We seek to limit the downside potential of our investments by:

• selecting investments that we believe have a low probability of loss of principal;

• requiring a total return on our investments (including both interest and potential equity appreciation) that we believe will compensate us appropriately for credit risk;

• negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses as possible, consistent with the preservation of our capital.

Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or rights to a seat on the board of directors under some circumstances.

We expect to hold most of our investments to maturity or repayment, but we may realize or sell some of our investments earlier if a liquidity event occurs, such as a sale or recapitalization transaction, or the worsening of the credit quality of the portfolio company.

Managerial Assistance

As a BDC, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies.

This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance.

MCC Advisors provides such managerial assistance on our behalf to portfolio companies that request this assistance.

We may receive fees for these services and will reimburse MCC Advisors,

as our administrator, for its allocated costs in providing such assistance, subject to the review and approval by our board of directors, including our independent directors.

Through any credit facility that we may enter into in the future, we may borrow funds to make additional investments, a practice known as “leverage,” to attempt to increase return to our stockholders.

The amount of leverage that we employ at any particular time will depend on our Adviser ' s and our board of directors’ assessments of market and other factors at the time of any proposed borrowing.

we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its

other capital providers to structure an investment.

We negotiate among these parties to agree on how our investment is expected to perform

relative to the other capital in the portfolio company’s capital structure.

structure our investments as follows:

Secured First Lien Term Loans We structure these investments as senior secured loans.

We obtain security interests in the assets

of the portfolio companies that serve as collateral in support of the repayment of such loans.

This collateral generally takes the form

of first-priority liens on the assets of the portfolio company borrower.

Our senior secured loans may provide for amortization of principal

with the majority of the amortization due at maturity.

Secured Second Lien Term Loans We structure these investments as junior, secured loans.

We obtain security interests in the assets

of these portfolio companies that serves as collateral in support of the repayment of such loans.

This collateral generally takes the

form of second-priority liens on the assets of a portfolio company.

These loans typically provide for amortization of principal in the

initial years of the loans, with the majority of the amortization due at maturity.

Secured First Lien Notes We structure these investments as senior secured loans.

We obtain security interests in the assets of these

portfolio companies that serve as collateral in support of the repayment of such loans.

This collateral generally takes the form of priority

liens on the assets of a portfolio company.

These loans typically have interest-only payments (often representing a combination of cash

pay and payment-in-kind, or (“PIK”) interest), with amortization of principal due at maturity.

PIK interest represents contractually

deferred interest added to the loan balance that is generally due at the end of the loan term and recorded as interest income on an accrual

basis to the extent such amounts are expected to be collected.

and Minority Equity Securities In some cases, we may also receive nominally priced warrants or options to buy a minority equity interest

in the portfolio company in connection with a debt investment.

As a result, as a portfolio company appreciates in value, we may achieve

additional investment return from this equity interest.

We may structure such warrants to include provisions protecting our rights as

a minority-interest holder, as well as a “put,”

or right to sell such securities back to the issuer, upon the occurrence

of specified events.

In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may

include demand and “piggyback”

registration rights.

Loans We structure our unitranche loans, which combine the characteristics of traditional senior secured first lien term loans and

subordinated notes as senior secured loans.

We obtain security interests in the assets of these portfolio companies that serve as collateral

in support of the repayment of these loans.

This collateral generally takes the form of first-priority liens on the assets of a portfolio

Unitranche loans typically provide for amortization of principal in the initial years of the loans, with the majority of the

amortization due at maturity.

Debt We structure these investments as unsecured, subordinated loans that provide for relatively high, fixed interest rates that

provide us with significant current interest income.

These loans typically have interest-only payments (often representing a combination

of cash pay and payment-in-kind, or PIK interest), with amortization of principal due at maturity.

Subordinated notes generally allow

the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is

unable to pay the lump sum or refinance the amount owed at maturity.

Subordinated notes are generally more volatile than secured loans

and may involve a greater risk of loss of principal.

Subordinated notes often include a PIK feature, which effectively operates as negative

amortization of loan principal.

expect to hold most of our investments to maturity or repayment, but we may realize or sell some of our investments earlier if a liquidity

event occurs, such as a sale or recapitalization transaction, or the worsening of the credit quality of the portfolio company.

Company has invested in its affiliate, FlexFIN, LLC (“FlexFIN”), which operates an asset-based lending business under which

it enters into secured loans and secured financing structures with borrowers engaged in the gemstone/jewelry industry.

FlexFIN will generally

structure these loans as sale/repurchase transactions under which the collateral (that is, the gemstones/jewelry) remains under FlexFIN’s

ownership during the entire term of the loan.

a BDC, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies.

This assistance could involve,

among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting

with and advising officers of portfolio companies and providing other organizational and financial guidance.

We may receive fees for

these services.

a BDC, we are generally only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at

least 200% after giving effect to such leverage.

The amount of leverage that we employ at any time depends on our assessment of the market

and other factors at the time of any proposed borrowing.

We are also subject to certain regulatory requirements relating to our borrowings.

For a discussion of such requirements, see “Regulation - Senior Securities.”

We may, from time to time, seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise.

Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.

For a discussion of such requirements, see “Regulation - Senior Securities.”

may, from time to time, seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our

outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise.

repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory

restrictions and other factors.

The amounts involved may be material.

Our primary competitors to provide financing to private middle-market companies are public and private funds, commercial and investment banks, commercial finance companies, other BDCs, SBICs and private equity and hedge funds.

Some competitors may have access to funding sources that are not available to us.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us.

Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we must satisfy to maintain our favorable RIC tax treatment.

We do not have any employees.

Our day-to-day investment operations are managed by our Adviser.

Our Adviser employs over 25 investment professionals, including its principals.

In addition, we reimburse our administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations under an administration agreement, including the compensation of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.

primary competitors to provide financing to private companies are public and private funds, commercial and investment banks, commercial

finance companies, other BDCs, SBICs and private equity and hedge funds.

Some competitors may have access to funding sources that are

not available to us.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could

allow them to consider a wider variety of investments and establish more relationships than us.

Furthermore, many of our competitors

are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements

we must satisfy to maintain our favorable RIC tax treatment.

Capital Resources

of September 30, 2021, the internalized management team consists of 4 investment professionals and 7 employees/consultants

This team includes our executive officers, investment and finance professionals, and administrative staff.

Our senior management

team consists of David Lorber, our chief executive officer, and Ellida McMillan, our chief financial officer.

response to the COVID-19 pandemic, we have instituted a temporary work-from-home policy, pursuant to which our professional team has

and continues to primarily work remotely without disruption to our operations.

This policy will remain in effect until it is deemed safe

to return to our office.

an internally managed BDC, the success of our business and investment strategy, including achieving our investment objective, depends

in material part on our professional team.

We depend upon the members of our management team and our investment professionals for the

identification, final selection, structuring, closing and monitoring of our investments.

Our professional team has critical experience

and relationships on which we rely to implement our business plan.

We expect that the members of our management team and our investment

professionals will maintain key informal relationships, which we will use to help identify and gain access to investment opportunities.

If we do not attract, develop and retain highly talented professionals, we may not be able to operate our business as we expect and our

operating results could be adversely affected.

See “Item 1A, Risk Factors.”

Administration

We have entered into an administration agreement, pursuant to which MCC Advisors furnishes us with office facilities, equipment and clerical, bookkeeping, recordkeeping and other administrative services at such facilities.

Under our administration agreement, MCC Advisors performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC.

Termination of Agreements and Plan of Mergers

On July 29, 2019, the Company entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra Income Corporation (“Sierra”), pursuant to which the Company would, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into Sierra, with Sierra as the surviving company in the merger (the “MCC Merger”).

In addition, on July 29, 2019, Sierra and MDLY entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among MDLY, Sierra, and Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), pursuant to which MDLY would, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the merger (the “MDLY Merger”).

On May 1, 2020, the Company received a notice of termination from Sierra of the Amended MCC Merger Agreement.

Under the Amended MCC Merger Agreement, either party could have, subject to certain conditions, terminated the Amended MCC Merger Agreement if the MCC Merger had not been consummated by March 31, 2020.

Representatives of Sierra informed the Company that in determining to terminate the Amended MCC Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of the Company and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MCC Merger in a timely manner.

In addition, on May 1, 2020, MDLY received a notice of termination from Sierra of the Amended MDLY Merger Agreement.

Under the Amended MDLY Merger Agreement, either party could have, subject to certain conditions, terminate the Amended MDLY Merger Agreement if the MDLY Merger had not been consummated by March 31, 2020.

Representatives of Sierra informed MDLY that in determining to terminate the Amended MDLY Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MDLY and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MDLY Merger in a timely manner.

Information Available

We maintain a website at http://www.medleycapitalcorp.com .

We make available, free of charge, on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S.

previously entered into (on January 11, 2011) and, prior to January 1, 2021, operated pursuant to an investment management agreement

with MCC Advisors (the “Investment Management Agreement”) in accordance with the 1940 Act.

The Investment Management Agreement

became effective upon the pricing of our initial public offering.

Under the Investment Management Agreement, MCC Advisors agreed to provide

us with investment advisory and management services.

For these services, we agreed to pay a base management fee equal to a percentage

of our gross assets and an incentive fee based on our performance.

The Investment Management Agreement expired December 31, 2020 and

effective January 1, 2021, we operate pursuant to an internalized management structure.

also entered into an administration agreement with MCC Advisors as our administrator on January 19, 2011.

The administration agreement

became effective upon the pricing of our initial public offering.

Under the administration agreement, MCC Advisors agreed to furnish

us with office facilities and equipment, provide us clerical, bookkeeping and record keeping services at such facilities and provide

us with other administrative services necessary to conduct our day-to-day operations.

MCC Advisors also provided on our behalf significant

managerial assistance to those portfolio companies to which we are required to provide such assistance.

The administration agreement

expired at the close of business on December 31, 2020, in connection with the Company’s adoption of an internalized management

In connection with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the

Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S.

Fund Services, LLC d/b/a U.S.

Bank Global Fund Services (“U.S.

Bancorp”).

Effective January 1, 2021, U.S.

Bancorp acts as

our administrator.

Under the Fund Accounting Servicing Agreement and Administration Servicing Agreement, U.S.

Bancorp serves as custodian

and provides us with fund accounting and financial reporting services.

of Agreements

entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”),

which expired December 31, 2020.

terms of the Investment Management Agreement, MCC Advisors:

the composition of our portfolio, the nature and timing of the changes to our portfolio and

the manner of implementing such changes;

● identified,

evaluated and negotiated the structure of the investments we made (including performing due

diligence on our prospective portfolio companies);

closed, monitored and administered the investments we made, including the exercise of any

voting or consent rights.

Advisors’

services under the Investment Management Agreement were not exclusive, and it was free to furnish similar services to

other entities so long as its services to us were not impaired.

to the Investment Management Agreement, we paid MCC Advisors a fee for investment advisory and management services consisting of a base

management fee and a two-part incentive fee.

December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the Investment Management

Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion.

In addition, MCC

Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee

net investment income over a 6% hurdle.

Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling

three-year look back from January 1, 2016 forward.

Under no circumstances would the new fee structure result in higher fees to MCC Advisors

than fees under the prior investment management agreement.

following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by

MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”).

The terms of the Fee Waiver Agreement were effective as of

January 1, 2016, and were a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC

Advisors for the investment advisory and management services it provided under the Investment Management Agreement.

The Fee Waiver Agreement

did not change the second component of the incentive fee, which was the incentive fee on capital gains.

January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment

Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as

of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger

Agreement”) was in effect, but no longer than a year;

provided that, if the Amended MCC Merger Agreement is terminated by Sierra,

then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice

of termination to the Company.

On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from

Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC

Merger Agreement if the merger was not consummated by March 31, 2020.

Sierra elected to do so on May 1, 2020.

As result of the termination

by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective

as of May 31, 2020.

On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management

Agreement through the end of the then-current quarter, June 30, 2020.

On June 12, 2020, the Board, including all of the independent directors,

extended the term of the Investment Management Agreement through September 30, 2020.

On September 29, the Board, including all of the

independent directors, extended the term of the Investment Management Agreement through December 31, 2020.

Brook Taube, Chairman

and Chief Executive Officer through December 31, 2020 and director through January 21, 2021 and Mr.

Seth Taube, director through January

21, 2021 are affiliated with MCC Advisors and Medley.

November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021.

The new management

structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31,

To lead the internalized management team, the Board approved the appointment of David Lorber, who has served as an independent

director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company,

each effective January 1, 2021.

In connection with his appointment, Mr.

Lorber stepped down from the Compensation Committee of the Board,

the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board.

maintain a website at http://www.phenixfc.com .

We make available, free of charge, on our website, our annual report on

Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable

after we electronically file such material with, or furnish it to, the U.S.

Securities and Exchange Commission, or the SEC.

Information contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K or any other report we file with the SEC.

Summary of Risk Factors

Investing in our securities involves a high degree of risk.

You should carefully consider the information in “Item 1A.

Risk Factors”, including, but not limited to, the following risks:

Risks Related to our Business

• We have determined to internalize our operating structure, including our management and investment functions, with the expectation that we will be able to operate more efficiently with lower costs, but this may not be the case.

• As an internally managed BDC, we will be dependent upon our management team and other professionals and if we are not able to hire and retain qualified personnel, we will not realize the anticipated benefits of the internalization.

• We may suffer credit losses.

• Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us.

• The lack of liquidity in our investments may adversely affect our business.

• A substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by or under the direction of our board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments.

• We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.

• Our ability to enter into transactions with our affiliates will be restricted, which may limit the scope of investments available to us.

• We will be exposed to risks associated with changes in interest rates.

• Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio.

• Because we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income.

• If our investments are not managed effectively, we may be unable to achieve our investment objective.

• We may experience fluctuations in our periodic operating results.

• Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.

• We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

• We may be required to pay incentive fees on income accrued, but not yet received in cash.

• We may not be able to pay you distributions and our distributions may not grow over time.

• The highly competitive market in which we operate may limit our investment opportunities.

• Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms or at all.

• Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.

• There are significant potential conflicts of interest that could affect our investment returns.

• There may be conflicts of interest related to obligations MCC Advisors’ senior management and Investment Team and members of its Investment Committee have to other clients.

• MCC Advisors may, from time to time, possess material non-public information, limiting our investment discretion.

• Our incentive fee structure may create incentives for MCC Advisors that are not fully aligned with the interests of our stockholders.

• Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us.

• Our incentive fee may induce our investment adviser to make certain investments, including speculative investments.

• We may be obligated to pay our investment adviser incentive compensation even if we incur a loss and may pay more than 20% of our net capital gains because we cannot recover payments made in previous years.

• The valuation process for certain of our portfolio holdings creates a conflict of interest.

• Other arrangements with MCC Advisors may create conflicts of interest.

• The investment management agreement and administration agreement with MCC Advisors were not negotiated on an arm’s length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.

• Our ability to sell or otherwise exit investments in which affiliates of MCC Advisors also have an investment may be restricted.

• We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions.

• A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.

• Our business and operations could be negatively affected if we become subject to any securities class actions and derivative lawsuits, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.

Risks Related to our Investments

• We may not realize gains from our equity investments.

• Our investments are very risky and highly speculative.

• Our investments in private middle-market portfolio companies may be risky, and you could lose all or part of your investment.

• Continuation of the current decline in oil and natural gas prices for a prolonged period of time could have a material adverse effect on the Company.

• Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields.

• We may acquire indirect interests in loans rather than direct interests, which would subject us to additional risk.

• Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted.

• Our ability to invest in public companies may be limited in certain circumstances.

• Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S.

• Our ability to invest in public companies may be limited in certain circumstances.

• Hedging transactions may expose us to additional risks.

• The disposition of our investments may result in contingent liabilities.

• If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments.

Risks Related to our Operations as a BDC and a RIC

• Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations.

• Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition.

• We cannot predict how tax reform legislation will affect the Company, our investments, or our stockholders, and any such legislation could adversely affect our business.

• Legislation that became effective in 2018 may allow the Company to incur additional leverage, which could increase the risk of investing in the Company.

• If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.

• We will become subject to corporate-level U.S.

federal income tax if we are unable to maintain our qualification as a regulated investment company under Subchapter M of the Code or satisfy regulated investment company distribution requirements.

Risks Relating to an Investment in our Securities

• Investing in our securities may involve an above average degree of risk.

• Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount to their NAV.

• The market price of our common stock may fluctuate significantly.

• Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

• Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

• The NAV per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or securities to subscribe for or convertible into shares of our common stock.

• The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.

• The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

• The indenture under which the Notes were issued contains limited protection for holders of the Notes.

• An active trading market for the Notes may not develop or be sustained, which could limit the market price of the Notes or your ability to sell them.

• If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.

• If we issue preferred stock, the NAV and market value of our common stock may become more volatile.

• Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.

General Risk Factors

• We are currently operating in a period of capital markets disruptions and economic uncertainty.

Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and operations .

• Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations.

• Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.

• Further downgrades of the U.S.

credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings.

• Economic recessions or downturns could impair our portfolio companies and harm our operating results.

We have built a diverse portfolio that includes senior secured first lien term loans, senior secured second lien term loans, unitranche, senior secured first lien notes, subordinated notes and warrants and minority equity securities by investing approximately $10 million to $50 million of capital, on average, in the securities of middle-market companies.

The following table shows the portfolio composition by industry grouping at fair value at September 30, 2020 (dollars in thousands):

Fair Value Percentage

contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information

contained on our website to be part of this annual report on Form 10-K or any other report we file with the SEC.

of Risk Factors

in our securities involves a high degree of risk.

You should carefully consider the information in “Item 1A.

Risk Factors”,

including, but not limited to, the following risks:

Related to our Business

have determined to internalize our operating structure, including our management and investment

functions, with the expectation that we will be able to operate more efficiently with lower

costs, but this may not be the case.

an internally managed BDC, we are dependent upon our management team and other professionals

and if we are not able to hire and retain qualified personnel, we will not realize the anticipated

benefits of the internalization.

may suffer credit and capital losses.

we use borrowed funds to make investments or fund our business operations, we are exposed

to risks typically associated with leverage which increase the risk of investing in us.

lack of liquidity in our investments may adversely affect our business.

substantial portion of our portfolio investments will be recorded at fair value as determined

in good faith by or under the direction of our board of directors and, as a result, there

may be uncertainty regarding the value of our portfolio investments.

are a non-diversified investment company within the meaning of the 1940 Act, and therefore

we are not limited with respect to the proportion of our assets that may be invested in securities

of a single issuer.

ability to enter into transactions with our affiliates will be restricted, which may limit

the scope of investments available to us.

will be exposed to risks associated with changes in interest rates.

relating to the London Interbank Offering Rate (“LIBOR”) calculation process may adversely affect the value of the LIBOR-indexed,

floating-rate debt securities in our portfolio.

we use debt to finance our investments, changes in interest rates will affect our cost of

capital and net investment income.

our investments are not managed effectively, we may be unable to achieve our investment objective.

may experience fluctuations in our periodic operating results.

failure on our part to maintain our status as a BDC would reduce our operating flexibility.

may have difficulty paying our required distributions if we recognize income before or without

receiving cash representing such income.

may not be able to pay you distributions and our distributions may not grow over time.

highly competitive market in which we operate may limit our investment opportunities.

we expect to distribute substantially all of our net investment income and net realized capital

gains to our stockholders, we will need additional capital to finance our growth and such

capital may not be available on favorable terms or at all.

board of directors may change our investment objective, operating policies and strategies

without prior notice or stockholder approval.

are significant potential conflicts of interest that could affect our investment returns.

management team may, from time to time, possess material non-public information, limiting

our investment discretion.

we borrow money, the potential for loss on amounts invested in us will be magnified and may

increase the risk of investing in us.

are highly dependent on information systems and systems failures could significantly disrupt

our business, which may, in turn, negatively affect the market price of our common stock

and our ability to pay distributions.

failure of cybersecurity systems, as well as the occurrence of events unanticipated in our

disaster recovery systems and management continuity planning could impair our ability to

conduct business effectively.

business and operations could be negatively affected if we become subject to any securities

class actions and derivative lawsuits, which could cause us to incur significant expense,

hinder execution of investment strategy and impact our stock price.

Related to our Investments

may not realize gains from our equity investments.

investments are very risky and highly speculative.

investments in private portfolio companies may be risky, and you could lose all or part of

your investment.

portfolio companies may prepay loans, which prepayment may reduce stated yields if capital

returned cannot be invested in transactions with equal or greater expected yields.

may acquire indirect interests in loans rather than direct interests, which would subject

us to additional risk.

failure to make follow-on investments in our portfolio companies could impair the value of

our portfolio and our ability to make follow-on investments in certain portfolio companies

may be restricted.

ability to invest in public companies may be limited in certain circumstances.

investments in foreign securities may involve significant risks in addition to the risks

inherent in U.S.

affiliate’s asset-based lending activities are influenced by volatility in prices of

gemstones/jewelry.

transactions may expose us to additional risks.

may invest in “unitranche”

debt instruments that combine both senior and subordinated

debt into one debt instrument.

Unitranche debt instruments typically pay a higher

rate of interest than traditional senior debt instruments, but may also pose greater risk

associated with a lesser amount of asset coverage.

may invest in, or obtain exposure to, obligations that may be “covenant-lite,”

which means such obligations lack certain financial maintenance covenants.

disposition of our investments may result in contingent liabilities.

we invest in the securities and obligations of distressed and bankrupt issuers, we might

not receive interest or other payments.

Related to our Operations as a BDC and a RIC

● Regulations

governing our operation as a BDC may limit our ability to, and the way in which we raise

additional capital, which could have a material adverse impact on our liquidity, financial

condition and results of operations.

in the laws or regulations governing our business, or changes in the interpretations thereof,

and any failure by us to comply with these laws or regulations, could have a material adverse

effect on our business, results of operations or financial condition.

cannot predict how tax reform legislation will affect the Company, our investments, or our

stockholders, and any such legislation could adversely affect our business.

we do not invest a sufficient portion of our assets in qualifying assets, we could fail to

qualify as a BDC, which would have a material adverse effect on our business, financial condition

and results of operations.

will become subject to corporate-level U.S.

federal income tax if we are unable to maintain

our qualification as a regulated investment company under Subchapter M of the Code or satisfy

regulated investment company distribution requirements.

Relating to an Investment in our Securities

in our securities may involve an above average degree of risk.

of closed-end investment companies, including business development companies, may, as is

currently the case with the Company, at times, trade at a discount to their net asset value (“NAV”).

market price of our common stock may fluctuate significantly.

of substantial amounts of our common stock in the public market may have an adverse effect

on the market price of our common stock.

provisions of the Delaware General Corporation Law and our certificate of incorporation and

bylaws could deter takeover attempts and have an adverse impact on the price of our common

NAV per share of our common stock may be diluted if we sell shares of our common stock in

one or more offerings at prices below the then current NAV per share of our common stock

or securities to subscribe for or convertible into shares of our common stock.

6.125% Notes due 2023 (the “Notes”) are unsecured and therefore are effectively subordinated to any secured indebtedness

we have currently incurred or may incur in the future.

Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

indenture under which the Notes were issued contains limited protection for holders of the

active trading market for the Notes may not develop or be sustained, which could limit the

market price of the Notes or your ability to sell them.

we default on our obligations to pay our other indebtedness, we may not be able to make payments

on the Notes.

we issue preferred stock, the NAV and market value of our common stock may become more volatile.

of any preferred stock we might issue would have the right to elect members of the board

of directors and class voting rights on certain matters.

are currently operating in a period of capital markets disruptions and economic uncertainty.

Such market conditions may materially and adversely affect debt and equity capital markets,

which may have a negative impact on our business, financial condition and operations .

outside of our control, including public health crises, could negatively affect our portfolio

companies and our results of our operations.

social and economic uncertainty, including uncertainty related to the COVID-19 pandemic,

creates and exacerbates risks.

downgrades of the U.S.

credit rating, automatic spending cuts, or another government shutdown

could negatively impact our liquidity, financial condition and earnings.

recessions or downturns could impair our portfolio companies and harm our operating results.

have built a diverse portfolio that includes senior secured first lien term loans, senior secured second lien term loans, unitranche

loans, senior secured first lien notes, subordinated notes, warrants and minority equity securities by investing approximately $10 million

to $50 million of capital, on average, in the securities of companies.

following table shows the portfolio composition by industry grouping at fair value as of September 30, 2021 (dollars in thousands):

Construction & Building

Multisector Holdings 41,019 16.6

Banking, Finance, Insurance & Real Estate

High Tech Industries

Healthcare & Pharmaceuticals 23,481 9.5

Business 21,841 8.9

Hotel, Gaming & Leisure

Wholesale 12,278 5.0

Containers, Packaging & Glass 11,987 4.8

Consumer goods:

Durable 9,520 3.8

Banking, Finance, Insurance & Real Estate 6,557 2.7

Consumer goods:

Non-durable 6,164 2.5

Manufacturing

Environmental Industries

Oil & Gas 5,626 2.3

Metals & Mining 3,530 1.4

Forest Products & Paper

Metals & Mining

Aerospace & Defense

Broadcasting & Subscription 1,110 0.5

Automotive 1,043 0.4

Retail 343 0.1

Total $ 246,744 100.0 %

The following table shows the portfolio composition by industry grouping at fair value at September 30, 2019 (dollars in thousands):

Fair Value Percentage

Consumer goods:

Healthcare & Pharmaceuticals

following table shows the portfolio composition by industry grouping at fair value as of September 30, 2020 (dollars in thousands):

Multisector Holdings

Construction & Building 59,608 15.0

Business 49,512 12.5

High Tech Industries

Healthcare & Pharmaceuticals

Oil & Gas 23,632 6.0

Hotel, Gaming & Leisure

Wholesale 13,850 3.5

Consumer 13,278 3.3

Containers, Packaging & Glass 12,637 3.2

Capital Equipment 10,680 2.7

Automotive 10,375 2.6

Banking, Finance, Insurance & Real Estate 10,000 2.5

Aerospace & Defense 8,604 2.2

Containers, Packaging &

Consumer goods:

Non-durable 6,326 1.6

Banking, Finance, Insurance

& Real Estate

Consumer goods:

Durable 6,170 1.6

Environmental Industries

1 unchanged sentence

Forest Products & Paper

Broadcasting & Subscription 2,408 0.6

Chemicals, Plastics & Rubber 2,277 0.6

Advertising, Printing & Publishing 1,715 0.4

Retail 532 0.1

Total $ 396,889 100.0 %

The following table sets forth certain information as of September 30, 2020 for each portfolio company in which we had an investment.

Other than these investments, our only formal relationship with our portfolio companies is the managerial assistance that we provide upon request and the board observer or participation rights we may receive in connection with our investment.

Name of Portfolio Company Sector Security Owned Maturity Interest Rate (1)

Principal Due at Maturity Fair Value % of Net Assets

1888 Industrial Services, LLC Energy:

Oil & Gas Senior Secured First Lien Term Loan A 9/30/2021 6.00 % $ 9,946,741 $ — 0.0 %

1888 Industrial Services, LLC Energy:

Oil & Gas Senior Secured First Lien Term Loan B 9/30/2021 9.00 % 25,937,520 — 0.0 %

1888 Industrial Services, LLC Energy:

Oil & Gas Senior Secured First Lien Term Loan C 9/30/2021 6.00 % 1,231,932 1,166,763 0.8 %

1888 Industrial Services, LLC Energy:

Oil & Gas Revolving Credit Facility 9/30/2021 6.00 % 3,554,069 3,554,069 2.4 %

1888 Industrial Services, LLC Energy:

Oil & Gas Equity — — 0.0 %

Access Media Holdings, LLC Media:

Broadcasting & Subscription Senior Secured First Lien Term Loan 7/22/2020 10.00 % 11,105,630 1,110,563 0.7 %

Access Media Holdings, LLC Media:

Broadcasting & Subscription Preferred Equity Series A 1,600,000 — 0.0 %

Access Media Holdings, LLC Media:

Broadcasting & Subscription Preferred Equity Series AA 800,000 — 0.0 %

Access Media Holdings, LLC Media:

Broadcasting & Subscription Preferred Equity Series AAA 971,200 — 0.0 %

Access Media Holdings, LLC Media:

Broadcasting & Subscription Equity — — 0.0 %

Alpine SG, LLC High Tech Industries Senior Secured First Lien Term Loan 11/16/2022 6.75 % 4,715,809 4,466,815 3.0 %

Alpine SG, LLC High Tech Industries Senior Secured Incremental First Lien Term Loan 11/16/2022 9.50 % 472,087 472,087 0.3 %

Name of Portfolio Company Sector Security Owned Maturity Interest Rate (1)

Principal Due at Maturity Fair Value % of Net Assets

Alpine SG, LLC High Tech Industries Senior Secured First Lien Delayed Draw Term Loan 11/16/2022 6.75 % 2,277,293 2,157,052 1.4 %

Alpine SG, LLC High Tech Industries Revolving Credit Facility 11/16/2022 9.50 % 1,000,000 947,200 0.6 %

American Dental Partners, Inc.

Healthcare & Pharmaceuticals Senior Secured Second Lien Term Loan 9/25/2023 9.50 % 4,387,500 3,948,750 2.6 %

Aerospace & Defense

Broadcasting &

following table sets forth certain information as of September 30, 2021 for each portfolio company in which we had an investment.

than these investments, our only formal relationship with our portfolio companies is the managerial assistance that we provide upon request

and the board observer or participation rights we may receive in connection with our investment.

Name of Portfolio Company

1888 Industrial Services, LLC

Senior Secured First Lien Term Loan A

9/30/2021 (2)

1888 Industrial Services, LLC

Senior Secured First Lien Term Loan B

9/30/2021 (2)

1888 Industrial Services, LLC

Senior Secured First Lien Term Loan C

9/30/2021 (2)

1888 Industrial Services, LLC

Revolving Credit Facility

9/30/2021 (2)

1888 Industrial Services, LLC

Alpine SG, LLC

High Tech Industries

Senior Secured First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured First Lien Delayed Draw Term Loan

Alpine SG, LLC

High Tech Industries

Revolving Credit Facility

Autosplice, Inc.

High Tech Industries Senior Secured First Lien Term Loan 12/17/2021 9.00 % 12,780,349 11,898,505 7.9 %

Avantor, Inc.

Wholesale Equity — 12,277,988 8.2 %

Be Green Packaging, LLC Containers, Packaging & Glass Equity — — 0.0 %

Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan 12/31/2020 10.00 % 758,929 758,929 0.5 %

Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan 12/31/2020 10.00 % 8,412,596 5,047,557 3.4 %

Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Equity — — 0.0 %

Caddo Investors Holdings 1 LLC Forest Products & Paper Equity — 2,990,776 2.0 %

CM Finance SPV, LLC Banking, Finance, Insurance & Real Estate Unsecured Debt 6/24/2021 3.00 % 101,463 101,463 0.1 %

Senior Secured First Lien Term Loan

Be Green Packaging, LLC

Containers, Packaging & Glass

Black Angus Steakhouses, LLC

Hotel, Gaming & Leisure

Senior Secured First Lien Term Loan

Black Angus Steakhouses, LLC

Hotel, Gaming & Leisure

Senior Secured First Lien Super Priority DDTL

Black Angus Steakhouses, LLC

Hotel, Gaming & Leisure

Senior Secured First Lien Delayed Draw Term Loan

Caddo Investors Holdings 1 LLC

Forest Products & Paper

Chimera Investment Corp.

Banking, Finance, Insurance & Real Estate

Preferred Equity

Cleaver-Brooks, Inc.

Manufacturing

Senior Secured Notes

CM Finance SPV, LLC

Unsecured Debt

CPI International, Inc.

Aerospace & Defense Senior Secured Second Lien Term Loan 7/28/2025 8.25 % 2,607,062 2,219,392 1.5 %

Crow Precision Components, LLC Aerospace & Defense Equity — 723,131 0.5 %

CT Technologies Intermediate Holdings, Inc.

Healthcare & Pharmaceuticals Senior Secured Second Lien Term Loan 12/1/2022 10.00 % 7,500,000 6,832,500 4.5 %

Aerospace & Defense

Senior Secured Second Lien Term Loan

DataOnline Corp.

High Tech Industries Senior Secured First Lien Term Loan 11/13/2025 7.25 % 4,962,500 4,786,331 3.2 %

High Tech Industries

Senior Secured First Lien Term Loan

DataOnline Corp.

High Tech Industries Revolving Credit Facility 11/13/2025 7.25 % 535,714 510,357 0.3 %

Dream Finders Homes, LLC Construction & Building Preferred Equity 8.00 % 4,531,472 3,928,786 2.6 %

Dynamic Energy Services International LLC Energy:

Oil & Gas Senior Secured First Lien Term Loan 12/31/2021 13.74 % 12,930,235 905,116 0.6 %

Dynamic Energy Services International LLC Energy:

Oil & Gas Equity — — 0.0 %

Footprint Acquisition, LLC Services:

Business Preferred Equity 8.75 % 3,969,998 3,969,998 2.6 %

Footprint Acquisition, LLC Services:

Business Equity — 1,960,830 1.3 %

Global Accessories Group, LLC Consumer goods:

Non-durable Equity — — 0.0 %

Impact Group, LLC Services:

Business Senior Secured First Lien Term Loan 6/27/2023 8.37 % 3,219,964 2,994,565 2.0 %

Impact Group, LLC Services:

Business Senior Secured First Lien Delayed Draw Term Loan 6/27/2023 8.37 % 9,330,056 8,676,952 5.8 %

InterFlex Acquisition Company, LLC Containers, Packaging & Glass Senior Secured First Lien Term Loan 8/18/2022 9.00 % 12,098,406 11,987,100 8.0 %

JFL-NGS Partners, LLC Construction & Building Preferred Equity - A-2 Preferred 3.00 % 1,795,034 1,795,034 1.2 %

JFL-NGS Partners, LLC Construction & Building Preferred Equity - A-1 Preferred 3.00 % 232,292 232,292 0.2 %

JFL-NGS Partners, LLC Construction & Building Equity — 38,780,067 25.7 %

JFL-WCS Partners, LLC Environmental Industries Preferred Equity 6.00 % 1,310,649 1,310,649 0.9 %

JFL-WCS Partners, LLC Environmental Industries Equity — 4,535,580 3.0 %

Name of Portfolio Company Sector Security Owned Maturity Interest Rate (1)

Principal Due at Maturity Fair Value % of Net Assets

Kemmerer Operations, LLC Metals & Mining Senior Secured First Lien Term Loan 6/21/2023 15.00 % 2,051,705 2,051,705 1.4 %

Kemmerer Operations, LLC Metals & Mining Senior Secured First Lien Delayed Draw Term Loan 6/21/2023 15.00 % 515,699 515,699 0.4 %

Kemmerer Operations, LLC Metals & Mining Equity — 962,717 0.6 %

Lighting Science Group Corporation Containers, Packaging & Glass Warrants 2/19/2024 — — 0.0 %

Manna Pro Products, LLC Consumer goods:

Non-durable Senior Secured First Lien Term Loan 12/8/2023 7.00 % 5,343,674 5,123,515 3.4 %

Manna Pro Products, LLC Consumer goods:

Non-durable Senior Secured First Lien Delayed Draw Term Loan 12/8/2023 7.00 % 1,085,219 1,040,508 0.7 %

MCC Senior Loan Strategy JV I LLC Multisector Holdings Equity — 41,018,500 27.2 %

NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan 12/31/2024 5.00 % 6,565,875 4,530,078 3.0 %

NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Super Priority DDTL 12/31/2024 5.00 % 2,000,000 2,000,000 1.3 %

NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan B 12/31/2024 10.25 % 14,963,195 — 0.0 %

NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan C 12/31/2024 13.00 % 10,014,223 — 0.0 %

NVTN LLC Hotel, Gaming & Leisure Equity — — 0.0 %

Path Medical, LLC Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan A 10/11/2021 10.50 % 5,905,080 5,905,080 3.9 %

Path Medical, LLC Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan B 10/11/2021 14.00 % 7,783,840 6,794,514 4.5 %

Path Medical, LLC Healthcare & Pharmaceuticals Warrants 1/9/2027 — — 0.0 %

Point.360 Services:

Business Senior Secured First Lien Term Loan 7/8/2020 2,777,366 186,083 0.1 %

High Tech Industries

Revolving Credit Facility

Dividend and Income Fund

Banking, Finance, Insurance & Real Estate

Name of Portfolio Company

Dream Finders Homes, LLC

Construction & Building

Preferred Equity

Dynamic Energy Services International LLC

Senior Secured First Lien Term Loan

Dynamic Energy Services International LLC

Equity Interest

Footprint Acquisition, LLC

Preferred Equity

Global Accessories Group, LLC

Consumer goods:

Great AJAX Corp.

Banking, Finance, Insurance & Real Estate

Impact Group, LLC

Senior Secured First Lien Term Loan

Impact Group, LLC

Senior Secured First Lien Delayed Draw Term Loan

InterFlex Acquisition Company, LLC

Containers, Packaging & Glass

Senior Secured First Lien Term Loan

Invesco Mortgage Capital, Inc.

Banking, Finance, Insurance & Real Estate

Preferred Equity

JFL-NGS Partners, LLC

Construction & Building

JFL-WCS Partners, LLC

Environmental Industries

Kemmerer Operations, LLC

Metals & Mining

Senior Secured First Lien Term Loan

Kemmerer Operations, LLC

Metals & Mining

Senior Secured First Lien Delayed Draw Term Loan

Kemmerer Operations, LLC

Metals & Mining

Lighting Science Group Corporation

Containers, Packaging & Glass

MFA Financial, Inc.

Banking, Finance, Insurance & Real Estate

Preferred Equity

New Residential Investment Corp.

Banking, Finance, Insurance & Real Estate

Preferred Equity

New York Mortgage Trust, Inc.

Banking, Finance, Insurance & Real Estate

Preferred Equity

Name of Portfolio Company

Hotel, Gaming & Leisure

Senior Secured First Lien Term Loan B

Hotel, Gaming & Leisure

Senior Secured First Lien Term Loan C

Hotel, Gaming & Leisure

Senior Secured First Lien Super Priority DDTL

Hotel, Gaming & Leisure

Senior Secured First Lien Delayed Draw Term Loan

Hotel, Gaming & Leisure

Path Medical, LLC

Healthcare & Pharmaceuticals

Senior Secured First Lien Term Loan A

Path Medical, LLC

Healthcare & Pharmaceuticals

Senior Secured First Lien Term Loan B

Path Medical, LLC

Healthcare & Pharmaceuticals

Senior Secured First Lien Term Loan

RateGain Technologies, Inc.

Hotel, Gaming & Leisure Unsecured Debt 7/31/2020 704,106 — 0.0 %

Hotel, Gaming & Leisure

Unsecured Debt

RateGain Technologies, Inc.

Hotel, Gaming & Leisure Unsecured Debt 7/31/2021 761,905 — 0.0 %

Redwood Services Group, LLC Services:

Business Revolving Credit Facility 6/6/2023 7.00 % 700,000 647,500 0.4 %

Sendero Drilling Company, LLC Energy:

Oil & Gas Unsecured Debt 8/31/2021 8.00 % 488,750 — 0.0 %

Hotel, Gaming & Leisure

Unsecured Debt

Redwood Services Group, LLC

Revolving Credit Facility

Sendero Drilling Company, LLC

Unsecured Debt

Seotowncenter, Inc.

Business Equity — 686,834 0.5 %

SFP Holding, Inc.

Construction & Building Senior Secured First Lien Term Loan 9/1/2022 7.25 % 4,776,955 4,733,962 3.1 %

Senior Secured First Lien Term Loan

SFP Holding, Inc.

Construction & Building Senior Secured First Lien Delayed Draw Term Loan 9/1/2022 7.25 % 1,852,522 1,835,850 1.2 %

Senior Secured First Lien Delayed Draw Term Loan

SFP Holding, Inc.

Construction & Building Equity — 657,578 0.4 %

SMART Financial Operations, LLC Retail Equity — 343,000 0.2 %

SMART Financial Operations, LLC

Preferred Equity

Stancor, Inc.

Business Equity — 150,374 0.1 %

Starfish Holdco, LLC High Tech Industries Senior Secured Second Lien Term Loan 8/18/2025 10.00 % 1,000,000 926,500 0.6 %

URT Acquisition Holdings Corporation Services:

Business Unsecured Debt 6/23/2021 10.00 % 2,567,929 2,567,929 1.7 %

US Multifamily, LLC Banking, Finance, Insurance & Real Estate Senior Secured First Lien Term Loan 6/17/2021 10.00 % 5,123,913 5,123,913 3.4 %

Name of Portfolio Company Sector Security Owned Maturity Interest Rate (1)

Principal Due at Maturity Fair Value % of Net Assets

US Multifamily, LLC Banking, Finance, Insurance & Real Estate Equity — 1,332,000 0.9 %

Velocity Pooling Vehicle, LLC Automotive Senior Secured First Lien Term Loan 4/28/2023 12.00 % 1,014,440 1,014,440 0.7 %

Velocity Pooling Vehicle, LLC Automotive Equity — 12,841 0.0 %

Velocity Pooling Vehicle, LLC Automotive Warrants 3/30/2028 — 15,354 0.0 %

Walker Edison Furniture Company LLC Consumer goods:

Durable Senior Secured First Lien Term Loan 9/26/2024 7.25 % 3,519,878 3,519,878 2.3 %

Walker Edison Furniture Company LLC Consumer goods:

Durable Equity — 6,000,000 4.0 %

Thryv Holdings, Inc.

Senior Secured First Lien Term Loan B

URT Acquisition Holdings Corporation

Unsecured Debt

URT Acquisition Holdings Corporation

US Multifamily, LLC

Banking, Finance, Insurance & Real Estate

Preferred Equity

US Multifamily, LLC

Banking, Finance, Insurance & Real Estate

Senior Secured First Lien Term Loan

Velocity Pooling Vehicle, LLC

Senior Secured First Lien Term Loan

Velocity Pooling Vehicle, LLC

Walker Edison Furniture Company LLC

Consumer goods:

Watermill-QMC Midco, Inc.

Automotive Equity — — 0.0 %

(1) All interest is payable in cash and/or PIK, and all London Interbank Offering Rate (“LIBOR”) represents 1 Month LIBOR and 3 Month LIBOR unless otherwise indicated.

Wingman Holdings, Inc.

(f/k/a Crow Precision Components, LLC)

Aerospace & Defense

All interest is payable in cash and/or PIK, and all London Interbank Offering Rate (“LIBOR”) represents 1 Month LIBOR and 3 Month LIBOR unless otherwise indicated.

For each debt investment, we have provided the current interest rate as of September 30, 2021.

As of September 30, 2020, our income-bearing investment portfolio, which represented 61.2% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 8.5%, and 87.4% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while 12.6% of our income-bearing investment portfolio bore interest at fixed rates.

As of September 30, 2019, the weighted average yield based upon cost of our total portfolio was approximately 9.5%.

The weighted average yield of our total portfolio does not represent the total return to our stockholders.

The weighted average yield on income producing investments is computed based upon a combination of the cash flows to date and the contractual interest payments, principal amortization and fee notes due at maturity without giving effect to closing fees received, base management fees, incentive fees or general fund related expenses.

For each floating rate loan, the projected fixed-rate equivalent coupon rate used to forecast the interest cash flows was calculated by adding the interest rate spread specified in the relevant loan document to the fixed-rate equivalent floating rate, duration-matched to the specific loan, adjusted by the floating rate floor and/or cap in place on that loan.

Overview of Portfolio Companies

Set forth below is a brief description of the business of our portfolio companies as of September 30, 2020:

Portfolio Company Brief Description of Portfolio Company

1888 Industrial Services, LLC 1888 Industrial Services, LLC (“1888”) provides field support services to oil and gas independent producers, drilling companies and midstream companies in the Denver-Julesburg Basin and Permian Basin.

1888 builds, repairs, modifies and maintains oil and gas production equipment, sites, wells and pipelines.

Access Media Holdings, LLC Access Media Holdings, LLC (d/b/a Access Media 3, Inc.) headquartered in Oak Brook, IL, is a triple-play provider of digital satellite television, high speed internet and voice services to the residential multi-dwelling unit market in the United States.

Alpine SG, LLC Alpine SG, LLC ("Alpine SG") is an aggregator of niche, vertically oriented software businesses.

Each acquired business operates independently with oversight from the Alpine SG management team.

American Dental Partners, Inc.

American Dental Partners, Inc., founded in 1995 and headquartered in Wakefield, MA, provides dental groups with critical administrative functions, enabling dentists to focus on clinical care.

The maturity date was extended to May 1, 2023 subsequent to September 30, 2021.

As of September 30, 2021, our income-bearing investment

portfolio, which represented 86.6% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of

approximately 6.75%, and 74.6% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while

25.4% of our income-bearing investment portfolio bore interest at fixed rates.

As of September 30, 2020, our income-bearing investment

portfolio, which represented 61.2% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of

approximately 8.5%, and 87.4% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while 12.6%

of our income-bearing investment portfolio bore interest at fixed rates.

The weighted average yield of our total portfolio does not represent

the total return to our stockholders.

The weighted average yield on income producing investments is computed based upon a combination

of the cash flows to date and the contractual interest payments, principal amortization and fee notes due at maturity without giving effect

to closing fees received, base management fees, incentive fees or general fund related expenses.

For each floating rate loan, the projected

fixed-rate equivalent coupon rate used to forecast the interest cash flows was calculated by adding the interest rate spread specified

in the relevant loan document to the fixed-rate equivalent floating rate, duration-matched to the specific loan, adjusted by the floating

rate floor and/or cap in place on that loan.

of Portfolio Companies

below is a brief description of the business of our portfolio companies as of September 30, 2021:

Description of Portfolio Company

1888 Industrial Services, LLC

1888 Industrial Services,

LLC (“1888”) provides field support services to oil and gas independent producers, drilling companies and midstream companies

in the Denver-Julesburg Basin and Permian Basin.

1888 builds, repairs, modifies and maintains oil and gas production equipment,

sites, wells and pipelines.

Alpine SG, LLC

Alpine SG, LLC (“Alpine

SG”) is an aggregator of niche, vertically oriented software businesses.

Each acquired business operates independently with

oversight from the Alpine SG management team.

Autosplice, Inc.

(“Autosplice”), founded in 1954 and headquartered in San Diego, CA, is a global supplier of highly engineered, mission-critical electrical interconnectors to OEMs and Tier 1 suppliers.

Autosplice serves a wide variety of end-markets, providing the automotive, industrial, telecommunications, medical, transportation, consumer, and other applications.

Avantor, Inc.

is a global provider of products and services to the biopharma, healthcare, education & government, and advanced technologies & applied materials industries.

Be Green Packaging, LLC Be Green Packaging, LLC, founded in 2007 and headquartered in Thousand Oaks, CA, designs and manufactures sustainable, tree-free, molded fiber products and packaging for the food service and consumer packaged goods end markets.

Black Angus Steakhouses, LLC Black Angus Steakhouses, LLC, founded in 1964 and headquartered in Los Altos, CA, operates restaurants across six states including California, Arizona, Alaska, New Mexico, Washington, and Hawaii.

Caddo Investors Holdings 1 LLC Caddo Investors Holdings 1 LLC (d/b/a TexMark Timber Treasury, L.P.), consists of ~1.1 million acres of high quality and relatively young timber lands located in East Texas.

CM Finance SPV LLC CM Finance SPV LLC is a wholly-owned subsidiary of Investcorp Credit Management BDC, Inc., a specialty finance company that invests primarily in the debt of U.S.

(“Autosplice”),

founded in 1954 and headquartered in San Diego, CA, is a global supplier of highly engineered, mission-critical electrical interconnectors

to OEMs and Tier 1 suppliers.

Autosplice serves a wide variety of end-markets, providing the automotive, industrial, telecommunications,

medical, transportation, consumer, and other applications.

Be Green Packaging, LLC

Be Green Packaging, LLC,

founded in 2007 and headquartered in Thousand Oaks, CA, designs and manufactures sustainable, tree-free, molded fiber products and

packaging for the food service and consumer packaged goods end markets.

Black Angus Steakhouses, LLC

Black Angus Steakhouses,

LLC, founded in 1964 and headquartered in Los Altos, CA, operates restaurants across six states including California, Arizona, Alaska,

New Mexico, Washington, and Hawaii.

Investors Holdings 1 LLC

Caddo Investors Holdings

1 LLC (d/b/a TexMark Timber Treasury, L.P.), consists of approximately 1.1 million acres of high quality and relatively young timber

lands located in East Texas.

Investment Corp.

Chimera Investment Corp.

is an internally managed REIT that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets,

including residential mortgage loans, Agency residential mortgage-backed securities (“RMBS”), Non-Agency RMBS, Agency commercial mortgage-backed securities (“CMBS”), and other real estate-related assets.

Cleaver-Brooks, Inc.

is a fully integrated

boiler room solutions provider, based in Thomasville, Georgia.

CM Finance SPV LLC

CM Finance SPV LLC is a

wholly-owned subsidiary of Investcorp Credit Management BDC, Inc., a specialty finance company that invests primarily in the debt

middle-market companies.

CPI International, Inc.

CPI International, Inc., headquartered in Palo Alto, CA.

develops and manufactures microwave, radio frequency, power, and control products for critical communications, defense and medical applications.

Crow Precision Components, LLC Crow Precision Components, LLC is a Fort Worth, TX based forger of aluminum and steel used for mission critical aircraft components, among other end markets.

Portfolio Company Brief Description of Portfolio Company

CT Technologies Intermediate Holdings, Inc.

CT Technologies Intermediate Holdings, Inc., founded in 1976 and located in Alpharetta, GA, is a provider of outsourced release-of-information services, which involves the interaction between healthcare providers, who possess protected medical information, and authorized requestors, who are entitled to receive that information for various commercial, legal, or personal purposes.

DataOnline Corp.

("DataOnline") is a global provider of M2M solutions specifically for the monitoring of both fixed and mobile remote industrial assets.

DataOnline specializes in robust and reliable devices & sensors, remote data collection, global wireless communications & web-based applications.

Dream Finders Homes, LLC Dream Finders Homes, LLC ("DFH"), founded in 2009 and headquartered in Jacksonville, FL, is a residential home builder currently operating in the greater Jacksonville, Orlando, Colorado, Savannah, Austin, and Washington DC markets.

DFH builds both single-family homes and townhomes.

Dynamic Energy Services International LLC Dynamic Energy Services International LLC, headquartered in New Orleans, LA, is a provider of full-service fabrication, construction and maintenance services to a broad range of worldwide markets including oil and gas, industrial and petrochemical markets.

Footprint Acquisition, LLC Footprint Acquisition, LLC is a provider of in store merchandising and logistics solutions to major retailers and consumer packaged goods manufacturers.

Global Accessories Group, LLC Global Accessories Group, LLC, headquartered in New York City, designs, manufactures, and sells custom-themed jewelry and accessory collections.

CPI International, Inc.,

headquartered in Palo Alto, CA.

develops and manufactures microwave, radio frequency, power, and control products for critical communications,

defense and medical applications.

Description of Portfolio Company

(“DataOnline”) is a global provider of M2M solutions specifically for the monitoring of both fixed and mobile remote

industrial assets.

DataOnline specializes in robust and reliable devices & sensors, remote data collection, global wireless communications

& web-based applications.

and Income Fund

and Income Fund is a diversified closed end management investment company that seeks to achieve primarily high current income and

secondarily capital appreciation by investing at least 50% of its total assets in income generating equity securities.

Finders Homes, LLC

Finders Homes, LLC (“DFH”), founded in 2009 and headquartered in Jacksonville, FL, is a residential home builder currently

operating in the greater Jacksonville, Orlando, Colorado, Savannah, Austin, and Washington DC markets.

DFH builds both single-family

homes and townhomes.

Energy Services International LLC

Energy Services International LLC, headquartered in New Orleans, LA, is a provider of full-service fabrication, construction and

maintenance services to a broad range of worldwide markets including oil and gas, industrial and petrochemical markets.

operates an asset-based lending business under which it enters into secured loans and secured

financing structures with borrowers engaged in the gemstone/jewelry industry.

Acquisition, LLC

Acquisition, LLC is a provider of in store merchandising and logistics solutions to major retailers and consumer packaged goods manufacturers.

Accessories Group, LLC

Accessories Group, LLC, headquartered in New York City, designs, manufactures, and sells custom-themed jewelry and accessory collections.

These collections are tailored to leading retailers in the specialty, department store, off-price and juniors markets.

Impact Group, LLC Impact Group, LLC is a Boise, Idaho based sales and marketing agency providing outsourced sales, marketing and merchandising services to consumer packaged goods manufacturers.

InterFlex Acquisition Company, LLC InterFlex Acquisition Company, LLC, headquartered in Wilkesboro, NC, is a comprehensive provider of specialized printed and converted flexible packaging solutions for food and consumer packaged goods producers throughout the USA and UK.

JFL-NGS Partners, LLC JFL-NGS Partners, LLC (d/b/a NorthStar Group Services, Inc.), is a one-stop provider of demolition and environmental remediation services including demolition, asset & scrap recovery, abatement of asbestos, lead, and mold, and disaster response.

JFL-WCS Partners, LLC JFL-WCS Partners, LLC (d/b/a Waste Control Specialists LLC) operates a state-of-the-art facility for the processing, treatment, storage and disposal of LLRW, hazardous waste, and mixed hazardous and radioactive wastes.

Kemmerer Operations, LLC Kemmerer Operations, LLC, location in Wyoming, is a producer of high-value thermal coal and surface-mined coal.

Lighting Science Group Corporation Lighting Science Group Corporation (“LSG”) is a light emitting diode (“LED”) lighting technology company.

LSG designs, develops and markets general illumination products that exclusively use LEDs as their light source.

The LSG’s product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires (light fixtures).

Manna Pro Products, LLC Manna Pro Products, LLC (“Manna Pro”), founded in 1985 and headquartered in Chesterfield, MO, is a manufacturer and distributor of pet nutrition and care products.

Manna Pro targets five core animal end markets:

dog & cat, horse, backyard chicken, other backyard pets and deer.

MCC Senior Loan Strategy JV I LLC MCC Senior Loan Strategy JV I LLC commenced operations on July 15, 2015 and generates current income and capital appreciation by investing primarily in the debt of privately-held middle market companies in the United States with a focus on senior secured first lien term loans (see Note 3 "Investments" in Item 8.

"Consolidated Financial Statements and Supplementary Data").

NVTN LLC NVTN LLC (d/b/a “Dick’s Last Resort”), established in 1985 and headquartered in Nashville, TN, is a “eatertainment” restaurant concept with locations throughout the US, mostly in budget friendly tourist destinations.

DLR has developed an identifiable brand for its high-energy, unique themed restaurant concept that targets tourists and business travelers in high foot traffic locations.

Path Medical, LLC Path Medical, LLC, founded in 1993, is a provider of fully-integrated acute trauma treatment and diagnostic imaging solutions to patients injured in automobile and non-work related accidents throughout Florida.

Point.360 Point.360, headquartered in Los Angeles, CA is a full-service content management company with several facilities strategically located throughout Los Angeles supporting all aspects of postproduction.

RateGain Technologies, Inc.

provides hospitality and travel technology solutions for revenue management decision support, rate intelligence, electronic distribution and brand engagement helping customers across the world in streamlining their operations and sales.

Redwood Services Group, LLC Redwood Services Group, LLC is a group of regional IT managed service providers that provide fully outsourced IT services to small and medium sized businesses.

Sendero Drilling Company, LLC Sendero Drilling Company, LLC is a land drilling contractor headquartered in San Angelo, TX.

Seotowncenter, Inc.

is a tech-enabled business services company that delivers white label search engine optimization and local search and digital campaign fulfillment to the small and midsize business market.

SFP Holding, Inc.

is a provider of fire and life safety security systems.

SMART Financial Operations, LLC SMART Financial Operations, LLC, headquartered in Orlando, FL, is a specialty retail platform initially comprised of three distinct retail pawn store chains and a pawn industry consulting firm.

Stancor, Inc.

Stancor, Inc., founded in 1985 and based out of Monroe, CT, is a designer and manufacturer of electric submersible pumps, control, accessories, and parts.

Starfish Holdco, LLC Starfish Holdco, LLC (d/b/a Syncsort or Precisely) through its subsidiaries is a global software company specializing in Big Data, high speed sorting products, data protection, data quality and integration software and services, for mainframe, power systems and open system environments to enterprise customers.

Portfolio Company Brief Description of Portfolio Company

URT Acquisition Holdings Corporation URT Acquisition Holdings Corporation (d/b/a United Road Towing or “URT”) headquartered in Mokena, IL is an integrated towing company in the United States.

is a REIT that acquires, invests in, and manages a portfolio of residential mortgage and small balance commercial mortgage

Mortgage Capital, Inc.

Mortgage Capital Inc.

is an externally managed REIT primarily focused on investing in, financing, and managing mortgage-backed securities

(“MBS”) and other mortgage-related assets.

Partners, LLC

Partners, LLC (d/b/a NorthStar Group Services, Inc.), is a one-stop provider of demolition and environmental remediation services

including demolition, asset & scrap recovery, abatement of asbestos, lead, and mold, and disaster response.

Partners, LLC

Partners, LLC (d/b/a Waste Control Specialists LLC) operates a state-of-the-art facility for the processing, treatment, storage and

disposal of LLRW, hazardous waste, and mixed hazardous and radioactive wastes.

Operations, LLC

Operations, LLC, location in Wyoming, is a producer of high-value thermal coal and surface-mined coal.

Science Group Corporation

Science Group Corporation (“LSG”) is a light emitting diode (“LED”) lighting technology company.

develops and markets general illumination products that exclusively use LEDs as their light source.

LSG’s product portfolio

includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires

(light fixtures).

MFA Financial,

Financial, Inc.

is an internally-managed REIT primarily engaged in investing in residential mortgage assets, with a focus on residential

whole loans, residential mortgage securities, and mortgage servicing rights-related assets.

New Residential Investment

Residential Investment Corp.

(“New Residential”) is a vertically integrated investment management and mortgage platform

externally managed by Fortress Investment Group.

New Residential’s investments focus on servicing and origination, residential

securities and loans, and consumer loans.

New York Mortgage Trust,

Trust is a REIT that acquires, invests in, finances and manages mortgage-related single-family and multi-family residential assets

LLC (d/b/a “Dick’s Last Resort”), established in 1985 and headquartered in Nashville, TN, is a “eatertainment”

restaurant concept with locations throughout the US, mostly in budget friendly tourist destinations.

NVTN LLC has developed an

identifiable brand for its high-energy, unique themed restaurant concept that targets tourists and business travelers in high

foot traffic locations.

Description of Portfolio Company

Medical, LLC, founded in 1993, is a provider of fully-integrated acute trauma treatment and diagnostic imaging solutions to patients

injured in automobile and non-work related accidents throughout Florida.

headquartered in Los Angeles, CA is a full-service content management company with several facilities strategically located throughout

Los Angeles supporting all aspects of postproduction.

Technologies, Inc.

provides hospitality and travel technology solutions for revenue management decision support, rate intelligence,

electronic distribution and brand engagement helping customers across the world in streamlining their operations and sales.

Services Group, LLC

Services Group, LLC is a group of regional IT managed service providers that provide fully outsourced IT services to small and medium

sized businesses.

Drilling Company, LLC

Drilling Company, LLC is a land drilling contractor headquartered in San Angelo, TX.

Seotowncenter,

is a tech-enabled business services company that delivers white label search engine optimization and local search and digital

campaign fulfillment to the small and midsize business market.

Financial Operations, LLC

Financial Operations, LLC, headquartered in Orlando, FL, is a specialty retail platform initially comprised of three distinct retail

pawn store chains and a pawn industry consulting firm.

Inc., founded in 1985 and based out of Monroe, CT, is a designer and manufacturer of electric submersible pumps, control, accessories,

Holdings, Inc.

is a provider of print and digital marketing solutions to small and medium sized businesses and SaaS end-to-end customer

experience tools.

URT Acquisition Holdings

Corporation (d/b/a United Road Towing or “URT”) headquartered in Mokena, IL is an integrated towing company in the United

URT provides a complete range of towing, vehicle storage and vehicle auction services.

US Multifamily, LLC US Multifamily, LLC (“US Multifamily”) is a real estate platform focused on distressed multifamily assets primarily located in the Southeastern United States.

Velocity Pooling Vehicle, LLC Velocity Pooling Vehicle, LLC, headquartered in Coppell, TX, is a manufacturer, distributor and retailer of branded aftermarket products for the powersports industry.

The Company's brands include Vance & Hines, Kuryakyn, Mustang, Performance Machine, and others.

Walker Edison Furniture Company LLC Walker Edison Furniture Company LLC ("Walker Edison") is an e-commerce furniture platform exclusively selling through the websites of top online retailers.

Walker Edison operates a data-driven business model to sell a variety of home furnishings in the discount category including TV stands, bedroom furniture, chairs & tables, desks and other.

Watermill-QMC Midco, Inc.

(d/b/a Quality Metalcraft, Inc.), founded in 1964 and headquartered in Livonia, MI, is a provider of complex assemblies for specialty automotive production, prototype and factory assist applications.

MCC Advisors currently serves as our investment adviser and is registered with the SEC as an investment adviser under the Advisers Act.

Subject to the overall supervision of our board of directors, MCC Advisors manages the day-to-day operations of, and provides investment advisory and management services to us pursuant to an investment management agreement by and between the Company and MCC Advisors.

Effective January 1, 2021, however, we will be internally managed.

See “- Internalized Management Structure” below.

Investment Management Agreement

Under the terms of our investment management agreement, MCC Advisors:

• determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

• identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies);

• executes, closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.

MCC Advisors’ services under the investment management agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.

Pursuant to our investment management agreement, we pay MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the investment management agreement.

Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion.

In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle.

Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward.

Under no circumstances will the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.

The following discussion of our base management fee and two-part incentive fee reflects the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”).

The terms of the Fee Waiver Agreement are effective as of January 1, 2016, and are a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it provides under the investment management agreement.

The Fee Waiver Agreement does not change the second component of the incentive fee, which is the incentive fee on capital gains.

Base Management Fee

For providing investment advisory and management services to us, MCC Advisors receives a base management fee.

The base management fee is calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets, and is payable quarterly in arrears.

The base management fee will be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and will be appropriately pro-rated for any partial quarter.

On May 4, 2018, MCC Advisors voluntarily elected to waive $380,000 of the base management fee payable for the quarter ended March 31, 2018, which is shown on the Consolidated Statements of Operations.

Incentive Fee

The incentive fee has two components, as follows:

Incentive Fee Based on Income

The first component of the incentive fee is payable quarterly in arrears and is based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee is being calculated.

MCC Advisors is entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.5%.

The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.

Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016).

We refer to such period as the “Trailing Twelve Quarters.”

The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.5% multiplied by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters.

The incentive fee for any partial period will be appropriately prorated.

Any incentive fee on net investment income will be paid to MCC Advisors on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters.

The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the reduced base management fee but excluding any incentive fee on Pre-Incentive Fee net investment income or on the Company’s capital gains.

Quarterly Incentive Fee Based on Income

The incentive fee on net investment income for each quarter is determined as follows:

• No incentive fee on net investment income is payable to MCC Advisors for any calendar quarter for which there is no Excess Income Amount;

• 100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by the Company’s net assets at the beginning of each applicable calendar quarter, as adjusted as noted above, comprising the relevant Trailing Twelve Quarters is included in the calculation of the incentive fee on net investment income;

• 17.5% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the incentive fee on net investment income.

The amount of the incentive fee on net investment income that will be paid to MCC Advisors for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).

The incentive fee on net investment income that is paid to MCC Advisors for a particular quarter is subject to a cap (the “Incentive Fee Cap”).

The Incentive Fee Cap for any quarter is an amount equal to (a) 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.

“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if any, in respect of the relevant Trailing Twelve Quarters.

If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee on net investment income to MCC Advisors for such quarter.

If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors equal to the Incentive Fee Cap for such quarter.

If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors, calculated as described above, for such quarter without regard to the Incentive Fee Cap.

“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, and dilution to the Company’s net assets due to capital raising or capital actions, in such period and (ii) aggregate capital gains, whether realized or unrealized and accretion to the Company’s net assets due to capital raising or capital action, in such period.

Dilution to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock, as the amount by which the net asset value per share was adjusted over the transaction price per share, multiplied by the number of shares issued.

Accretion to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock (including issuances pursuant to our dividend reinvestment plan), as the excess of the transaction price per share over the amount by which the net asset value per share was adjusted, multiplied by the number of shares issued.

Accretion to the Company’s net assets due to other capital action is calculated, in the case of repurchases by the Company of its own

common stock, as the excess of the amount by which the net asset value per share was adjusted over the transaction price per share multiplied by the number of shares repurchased by the Company.

For the avoidance of doubt, the purpose of the new incentive fee calculation under the Fee Waiver Agreement is to permanently reduce aggregate fees payable to MCC Advisors by the Company, effective as of January 1, 2016.

In order to ensure that the Company will pay MCC Advisors lesser aggregate fees on a cumulative basis, as calculated beginning January 1, 2016, we will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to January 1, 2016.

If, at any time beginning January 1, 2016, the aggregate fees on a cumulative basis, as calculated based on the formula in place after January 1, 2016, would be greater than the aggregate fees on a cumulative basis, as calculated based on the formula in place prior to January 1, 2016, MCC Advisors shall only be entitled to the lesser of those two amounts.

The second component of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement as of the termination date) and equals 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.

Under GAAP, the Company calculates the second component of the incentive fee as if the Company had realized all assets at their fair values as of the reporting date.

Accordingly, when applicable, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses.

As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.

For the year ended September 30, 2020, the Company incurred net base management fees payable to MCC Advisors of $6.4 million and did not incur any incentive fees related to pre-incentive fee net investment income.

The following is a graphical representation of the calculation of the income-related portion of the incentive fee effective as of January 1, 2016 pursuant to the Fee Waiver Agreement:

Pre-incentive Fee Net Investment Income

(Expressed as a Percentage of the Value of Net Assets)

Examples of Quarterly Incentive Fee Calculation

Income Related Portion of Incentive Fee:

• Net Asset Value at the start of Quarter 1 = $100.0 million (1 million shares)

• Quarter 1 Ordinary Income = $5.0 million

• Quarter 1 Issue 1 million shares at $101 per share = $1.0 million

• Quarter 1 Capital Gain = $1.0 million

• Quarter 1 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)

• Quarter 1 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)

• Net Asset Value at the start of Quarter 2 = $100.0 million (1 million shares)

• Quarter 2 Ordinary Income = $1.5 million

• Quarter 2 Capital Gain = $1.0 million

• Quarter 2 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)

• Quarter 2 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)

• Net Asset Value at the start of Quarter 3 = $100.0 million (1 million shares)

• Quarter 3 Ordinary Income = $4.0 million

• Quarter 3 Repurchase 500,000 shares at $99 per share = $0.50 million

• Quarter 3 Capital Loss = ($8.0) million

• Quarter 3 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)

• Quarter 3 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)

• Net Asset Value at the start of Quarter 4 = $100.0 million (1 million shares)

• Quarter 4 Ordinary Income = $4.0 million

• Quarter 4 Capital Gain = $3.0 million

• Quarter 4 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)

• Quarter 4 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)

Determination of Incentive Fee Based on Income:

In Quarter 1, the Ordinary Income of $5.0 million exceeds the Hurdle Amount of $1.50 million and the Catchup Amount of $1.8182 million.

There is $2 million of Net Capital Gains, including a capital gain of $1 million and accretion to the Company’s net asset value of $1 million as a result of issuing shares at a transaction price that exceeds the net asset value per share.

As a result, an Incentive Fee based on income of $875,000 ((100% of $318,182) + (17.5% of $3,181,818)) is payable to our investment adviser for Quarter 1.

In Quarter 2, the Quarter 2 Ordinary Income of $1.50 million does not exceed the Quarter 2 Hurdle Amount of $1.50 million, but the aggregate Ordinary Income for the Trailing Twelve Quarters of $6.50 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $3.0 million and the aggregate Catchup Amount for the Trailing Twelve Quarters of $3.6364 million.

There are no Net Capital Losses.

As a result, an Incentive Fee based on income of $262,500 ($1,137,500 (100% of $636,364) + (17.5% of 2,863,636) minus $875,000 paid in Quarter 1) would be payable to our investment adviser for Quarter 2.

In Quarter 3, the aggregate Ordinary Income of the Trailing Twelve Quarters of $10.5 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $4.5 million and the aggregate Catchup Amount for the Trailing Twelve Quarters of $5.4545 million.

However, there is an aggregate Net Capital Loss of ($4.5) million for the Trailing Twelve Quarters.

As a result, the Incentive Fee Cap would apply.

The Incentive Fee Cap equals $(87,500), calculated as follows:

(17.5% x ($10.5 million minus $4.5 million)) minus $1,137,500 paid in Quarters 1 and 2.

Because the Incentive Fee Cap is a negative value, there is no Incentive Fee based on income payable to the adviser for Quarter 3.

In Quarter 4, the aggregate Ordinary Income of the Trailing Twelve Quarters of $14.50 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $6.0 million and the aggregate Catchup Amount for the Trailing Twelve Quarters of $7.2727 million.

The calculation of the Incentive Fee based on income would be $1.40 million ($2,537,500 (100% of $1,272,727) + (17.5% of $7,227,272) minus $1,137,500 million paid in Quarters 1 and 2).

However, there is an aggregate Net Capital Loss of $(1.50) million for the Trailing Twelve Quarters.

As a result, the Incentive Fee Cap would apply.

The Incentive Fee Cap equals $1,137,500 calculated as follows:

(17.5% X ($14.5 million minus $1.5 million)) minus $1,137,500.

Because the Incentive Fee Cap is positive but less than the Incentive Fee based on Income of $1.40 million calculated prior to the Incentive Fee Cap, an Incentive Fee based on Income of $1,137,500 is payable to our investment adviser for Quarter 4.

Capital Gains Portion of Incentive Fee:

Alternative 1:

$20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)

Investment A sold for $50 million and fair market value, or FMV, of Investment B determined to be $32 million

FMV of Investment B determined to be $25 million

Investment B sold for $31 million

The capital gains portion of the incentive fee would be:

Capital gains incentive fee of $6.0 million ($30 million realized capital gains on sale of Investment A multiplied by 20.0%)

$5.0 million (20.0% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6.0 million (previous capital gains fee paid in Year 2) (the $1.0 million difference would not be deducted from future capital gains incentive fees)

Capital gains incentive fee of $200,000;

$6.2 million ($31 million cumulative realized capital gains multiplied by 20.0%) less $6.0 million (capital gains fee paid in Year 2)

Alternative 2:

$20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment made in Company C (“Investment C”)

Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million

FMV of Investment B determined to be $27 million and Investment C sold for $30 million

FMV of Investment B determined to be $35 million

Investment B sold for $20 million

The capital gains portion of the incentive fee would be:

Capital gains incentive fee of $5.0 million;

20.0% multiplied by $25 million ($30 million realized capital gains on Investment A less $5 million unrealized capital depreciation on Investment B)

Capital gains incentive fee of $1.4 million;

$6.4 million (20.0% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation on Investment B)) less $5.0 million capital gains fee received in Year 2

$5.0 million of capital gains incentive fee (20.0% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative capital gains fee paid in Year 2 and Year 3 (the $1.4 million difference would not be deducted from future capital gains incentive fees)

As noted above, in order to ensure that the Company will pay MCC Advisors a lesser base management fee and incentive fee on net investment income on a cumulative basis, as calculated beginning January 1, 2016, the Company will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to the Fee Waiver Agreement, and pay lesser of those two amounts.

Set forth below is a description of the base management fee and the incentive fee on net investment income payable to MCC Advisors prior to the Fee Waiver Agreement.

Base Management Fee — Prior to Fee Waiver Agreement

The base management fee was calculated at an annual rate of 1.75% of our gross assets, and is payable quarterly in arrears.

The base management fee is based on the average value of our gross assets at the end of the two most recently completed calendar quarters.

Incentive Fee — Prior to Fee Waiver Agreement

The incentive fee based on net investment income was calculated as 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets calculated as of the end of the calendar quarter immediately preceding the calendar quarter for which the incentive fee is being calculated, exceeds a 2.0% (which is 8.0% annualized) hurdle rate but also includes a “catch-up” provision.

Under this provision, in any calendar quarter, our investment adviser receives no incentive fee until our net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up”, 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%.

The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, our investment adviser will receive 20% of our pre-incentive fee net investment income as if the hurdle rate did not apply.

For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter including the base management fee, expenses payable under the administration agreement, and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee.

Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash.

Payment of Our Expenses

All investment professionals and staff of MCC Advisors, when, and to the extent, engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of such personnel allocable to such services, is provided and paid for by MCC Advisors.

We bear all other costs and expenses of our operations and transactions, including those relating to:

• our organization and continued corporate existence;

• calculating our net asset value (“NAV”) (including the cost and expenses of any independent valuation firms);

• expenses, including travel expense, incurred by MCC Advisors or payable to third parties performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

• interest payable on debt incurred to finance our investments;

• the costs of all offerings of common shares and other securities;

• the base management fee and any incentive management fee;

• distributions on our shares;

• administration fees payable under our administration agreement;

• the allocated costs incurred by MCC Advisors as our administrator in providing managerial assistance to those portfolio companies that request it;

• amounts payable to third parties relating to, or associated with, making investments;

• transfer agent and custodial fees;

• all registration and listing fees;

Multifamily, LLC

Multifamily, LLC (“US Multifamily”) is a real estate platform focused on distressed multifamily assets primarily located

in the Southeastern United States.

Pooling Vehicle, LLC

Pooling Vehicle, LLC, headquartered in Coppell, TX, is a manufacturer, distributor and retailer of branded aftermarket products for

the powersports industry.

The Company’s brands include Vance & Hines, Kuryakyn, Mustang, Performance Machine, and others.

Edison Furniture Company LLC

Edison Furniture Company LLC (“Walker Edison”) is an e-commerce furniture platform exclusively selling through the websites

of top online retailers.

Walker Edison operates a data-driven business model to sell a variety of home furnishings in the discount

category including TV stands, bedroom furniture, chairs & tables, desks and other.

Watermill-QMC

(d/b/a Quality Metalcraft, Inc.), founded in 1964 and headquartered in Livonia, MI, is a provider of complex assemblies

for specialty automotive production, prototype and factory assist applications.

Holdings, Inc.

(f/k/a Crow Precision

Holdings, Inc.

(f/k/a Crow Precision Components, LLC) is a Fort Worth, TX based forger of aluminum and steel used for mission critical

aircraft components, among other end markets.

RELATIONSHIP WITH MCC ADVISORS

to the effectiveness of our internalized management structure on January 1, 2021, MCC Advisors, an SEC-registered investment adviser

under the Advisers Act, served as our investment adviser pursuant to an investment management agreement.

Effective January 1, 2021, subject

to the overall supervision of our board of directors, our internal management team manages the day-to-day operations of PhenixFIN, and

provides investment advisory and management services.

See “- Internalized Management Structure”

below for further information.

Management Agreement

had entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”),

which expired on December 31, 2020.

terms of the Investment Management Agreement, MCC Advisors:

the composition of our portfolio, the nature and timing of the changes to our portfolio and

the manner of implementing such changes;

● identified,

evaluated and negotiated the structure of the investments we made (including performing due

diligence on our prospective portfolio companies);

closed, monitored and administered the investments we made, including the exercise of any

voting or consent rights.

Advisors’

services under the Investment Management Agreement were not exclusive, and it was free to furnish similar services to

other entities so long as its services to us were not impaired.

to the Investment Management Agreement, we paid MCC Advisors a fee for investment advisory and management services consisting of a base

management fee and a two-part incentive fee.

following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by

MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”).

The terms of the Fee Waiver Agreement were effective as of

January 1, 2016 and were a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors

for the investment advisory and management services it provided under the Investment Management Agreement.

The Fee Waiver Agreement did

not change the second component of the incentive fee, which was the incentive fee on capital gains.

January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment

Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as

of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger

Agreement”) was in effect, but no longer than a year;

provided that, if the Amended MCC Merger Agreement was terminated by Sierra,

then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice

of termination to the Company.

On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from

Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC

Merger Agreement if the merger was not consummated by March 31, 2020.

Sierra elected to do so on May 1, 2020.

As result of the termination

by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective

as of May 31, 2020.

On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management

Agreement through the end of the then-current quarter, June 30, 2020.

On June 12, 2020, the Board, including all of the independent directors,

extended the term of the Investment Management Agreement through September 30, 2020.

On September 29, 2020, the Board, including all

of the independent directors, extended the term of the Investment Management Agreement through December 31, 2020.

Brook Taube, our

Chairman and Chief Executive Officer through December 31, 2020 and one of our directors through January 21, 2021 and Mr.

one of our directors through January 21, 2021 are both affiliated with MCC Advisors and Medley.

November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021.

The new management

structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31,

To lead the internalized management team, the Board approved the appointment of David Lorber, who had served as an independent

director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company,

each effective January 1, 2021.

In connection with his appointment, Mr.

Lorber stepped down from the Compensation Committee of the Board,

the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board.

Base Management

December 31, 2020, for providing investment advisory and management services to us, MCC Advisors received a base management fee.

base management fee was calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross

assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets and was payable quarterly

The base management fee was calculated based on the average value of the Company’s gross assets at the end of the two

most recently completed calendar quarters.

Through December

31, 2020, the incentive fee had two components, as follows:

Fee Based on Income

first component of the incentive fee was payable quarterly in arrears and was based on our pre-incentive fee net investment income earned

during the calendar quarter for which the incentive fee was being calculated.

MCC Advisors was entitled to receive the incentive fee

on net investment income from us if our Ordinary Income (as defined below) exceeded a quarterly “hurdle rate”

hurdle amount was calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning

of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances

by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of

its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.

second component of the incentive fee was determined and payable in arrears as of the end of each calendar year (or upon termination

of the Investment Management Agreement as of the termination date) and equaled 20.0% of our cumulative aggregate realized capital gains

less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment

basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments

were previously made to the investment adviser.

the year ended September 30, 2021, the Company incurred net base management fees payable to MCC Advisors of $1.1 million and did not

incur any incentive fees related to pre-incentive fee net investment income.

The Investment Management Agreement terminated as of December

31, 2020, and the Company no longer incurs base management fees or incentive fees under the Investment Management Agreement as a result.

of Our Expenses

Since January 1, 2021, we are internally managed and do not pay any external investment advisory fees, but instead directly incur the

operating costs associated with employing professionals and staff.

We bear all costs and expenses of our operations and transactions,

including, but not limited to those related to:

organization and continued corporate existence;

● calculating

our net asset value (“NAV”) (including the cost and expenses of any independent

valuation firms);

including travel expense, incurred by our professionals or payable to third parties performing

due diligence on prospective portfolio companies, monitoring our investments and, if necessary,

enforcing our rights;

payable on debt incurred to finance our investments;

costs of all offerings of common shares and other securities;

costs associated with employing investment professionals and other staff;

● distributions

on our shares;

● administration

fees payable under our administration agreement;

payable to third parties relating to, or associated with, making investments;

agent and custodial fees;

registration and listing fees;

federal, state and local taxes;

• independent directors’ fees and expenses;

• costs of preparing and filing reports or other documents with the SEC or other regulators;

• the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

• our fidelity bond;

• directors and officers/errors and omissions liability insurance, and any other insurance premiums;

• indemnification payments;

• direct costs and expenses of administration, including audit and legal costs;

• all other expenses reasonably incurred by us or MCC Advisors in connection with administering our business, such as the allocable portion of overhead under our administration agreement, including rent and other allocable portions of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs (including travel expenses).

We reimburse MCC Advisors for costs and expenses incurred for office space rental, office equipment and utilities allocable to the performance by MCC Advisors of its duties under the administration agreement, as well as any costs and expenses incurred relating to any non-investment advisory, administrative or operating services provided to us or in the form of managerial assistance to portfolio companies that request it.

From time to time, MCC Advisors pays amounts owed by us to third party providers of goods or services.

We subsequently reimburse MCC Advisors for such amounts paid on our behalf.

Limitation of Liability and Indemnification

The investment management agreement provides that MCC Advisors and its officers, directors, employees and affiliates are not liable to us or any of our stockholders for any act or omission by it or its employees in the supervision or management of our investment activities or for any loss sustained by us or our stockholders, except that the foregoing exculpation does not extend to any act or omission constituting willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations under the investment management agreement.

The investment management agreement also provides for indemnification by us of MCC Advisors’ members, directors, officers, employees, agents and control persons for liabilities incurred by it in connection with their services to us, subject to the same limitations and to certain conditions.

Duration and Termination

The investment management agreement was initially approved by our board of directors on November 3, 2010 and was executed on January 11, 2011.

Pursuant to its terms and under the 1940 Act, the investment management agreement had an initial two-year term, and then was subject to an annual approval by our board of directors.

Unless terminated earlier as described below, it will continue in effect from year to year if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons.

The investment management agreement will automatically terminate in the event of its assignment.

The investment management agreement may be terminated by either party without penalty upon not more than 30 days’ written notice to the other.

Board Approval of the Investment Management Agreement

On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the investment management agreement through the later of April 1, 2020 or so long as the Amended MCC Merger Agreement, was in effect, but no longer than a year;

provided that, if the Amended MCC Merger Agreement were to be terminated by Sierra, then the termination of the investment management agreement would be effective on the 30th day following receipt of Sierra’s notice of such termination to the Company.

● independent

directors’

fees and expenses;

of preparing and filing reports or other documents with the SEC or other regulators;

costs of any reports, proxy statements or other notices to our stockholders, including printing

fidelity bond;

operating lease of our office space;

and officers/errors and omissions liability insurance, and any other insurance premiums;

● indemnification

costs and expenses of administration, including audit and legal costs.

Management Agreement Board Approval and Expiration

January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the investment

management agreement through the later of April 1, 2020 or so long as the Amended MCC Merger Agreement, was in effect, but no longer

provided that, if the Amended MCC Merger Agreement were to be terminated by Sierra, then the termination of the investment

management agreement would be effective on the 30th day following receipt of Sierra’s notice of such termination to the Company.

In that regard, on May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra.

Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020.

As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the investment management agreement would have been terminated effective as of May 31, 2020, without further action by our board of directors.

On May 21, 2020, our board of directors, including all of the independent directors, extended the term of the investment management agreement through the end of the quarter ended June 30, 2020.

On June 15, 2020, our board of directors, including all of the independent directors, extended the term of the investment management agreement through the end of the quarter ended September 30, 2020.

On September 29, 2020, our board of directors, including all of the independent directors, extended the term of the investment management agreement through the end of the quarter ended December 31, 2020.

Expense Support Agreement

On June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses, and other expenses approved by the special committee of the board of directors, comprised solely of directors who are not “interested persons” of the Company as such term is defined in Section 2(a)(19) of the 1940 Act (the “Special Committee”) (as described in Note 10)) at $667,000 per month (the “Cap”).

Under the Expense Support

Agreement, the Cap became effective on June 1, 2020 and expired on September 30, 2020.

On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020.

Administration Agreement

On January 19, 2011, the Company entered into an administration agreement with MCC Advisors.

Pursuant to the administration agreement, MCC Advisors furnishes us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related to the operations of the Company.

We reimburse MCC Advisors for our allocable portion of overhead and other expenses incurred by it performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staff.

From time to time, our administrator may pay amounts owed by us to third-party service providers and we will subsequently reimburse our administrator for such amounts paid on our behalf.

For the years ended September 30, 2020, 2019 and 2018, we incurred $2.2 million, $3.3 million, and $3.6 million in administrator expenses, respectively.

License Agreement

We have entered into a license agreement with Medley Capital LLC under which Medley Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name “Medley”.

Under this agreement, we will have a right to use the “Medley” name for so long as MCC Advisors or one of its affiliates remains our investment adviser.

Other than with respect to this limited license, we have no legal right to the “Medley” name.

This license agreement will remain in effect for so long as the investment management agreement with MCC Advisors is in effect.

Internalized Management Structure

On November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021.

The new management structure will replace the current investment management and administration agreements with MCC Advisors, which expire on December 31, 2020.

The board approved the establishment of a committee, consisting of Arthur Ainsberg, Karin Hirtler-Garvey, Lowell Robinson and Howard Amster, to oversee the transition to the internalized management structure.

To lead the internalized management team, the board appointed David Lorber, who has served as an independent director of the Company since April 2019, as interim Chief Executive Officer and Ellida McMillan, who previously served as Chief Financial Officer and Chief Operating Officer of Alcentra Capital Corporation, a NASDAQ-traded BDC, from April 2017 until it merged into Crescent Capital BDC, Inc.

in February 2020, as Chief Financial Officer of the Company, each effective January 1, 2021.

Lorber will be paid an annual base salary of $425,000, and Ms.

McMillan will be paid an annual base salary of $300,000, and each will be eligible for a discretionary cash bonus.

The internalized management team will be responsible for the day-to-day management and operations of the Company, under the oversight of the board.

As part of the team, we have engaged a senior investment professional with significant credit experience to serve as the lead portfolio strategist, and retained Alaric Compliance Services, LLC, whose officer will serve as the Company’s Chief Compliance Officer.

The Company has also entered into a fund accounting servicing agreement and an administration servicing agreement on customary terms with U.S.

Bancorp Fund Services, LLC d/b/a U.S.

Bank Global Fund Services.

The remainder of the team members are in the process of being assembled.

We have elected to be regulated as a BDC under the 1940 Act.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons”, as that term is defined in the 1940 Act.

In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities.”

As a BDC, we are required to meet an asset coverage ratio, reflecting the value of our total assets to our total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%.

However, in March 2018, the Small Business Credit Availability Act (the “SBCA”) modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200% to 150%, if certain requirements are met.

Under the 1940 Act, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so.

If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval.

Alternatively, the 1940 Act allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective on the one-year anniversary of such approval.

In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.

Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement

if the merger was not consummated by March 31, 2020.

As result of the termination by Sierra of the Amended MCC Merger Agreement on May

1, 2020, the investment management agreement would have been terminated effective as of May 31, 2020, without further action by our board

of directors.

On May 21, 2020, our board of directors, including all of the independent directors, extended the term of the investment

management agreement through the end of the quarter ended June 30, 2020.

On June 15, 2020, our board of directors, including all of the

independent directors, extended the term of the investment management agreement through the end of the quarter ended September 30, 2020.

On September 29, 2020, our board of directors, including all of the independent directors, extended the term of the investment management

agreement through the end of the quarter ended December 31, 2020.

The Investment Management Agreement expired by its terms at the close

of business on December 31, 2020, in connection with the adoption of the internalized management structure by the board of directors.

Support Agreement

June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors

and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the

Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses and other expenses

approved by the Special Committee (as defined in Note 10)) at $667,000 per month (the “Cap”).

Under the Expense Support Agreement,

the Cap became effective on June 1, 2020 and expires on September 30, 2020.

On September 29, 2020, the board of directors, including

all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020.

The Expense Support Agreement expired by its terms at the close of business on December 31, 2020, in connection with the adoption of

the internalized management structure by the board of directors.

Administration

January 19, 2011, the Company entered into an administration agreement with MCC Advisors.

Pursuant to the administration agreement, MCC

Advisors furnished us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related

to the operations of the Company.

We reimbursed MCC Advisors for our allocable portion of overhead and other expenses incurred by it

performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our Chief Financial

Officer and Chief Compliance Officer and their respective staffs.

From time to time, our administrator was able to pay amounts owed by

us to third-party service providers and we would subsequently reimburse our administrator for such amounts paid on our behalf.

In connection

with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the Company entered into a

Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S.

administration agreement with MCC Advisors terminated by its terms on December 31, 2020.

Effective January 1, 2021, U.S.

Bancorp serves

as our administrator under the Fund Accounting Servicing Agreement and Administration Agreement.

Pursuant to these agreements, U.S.

serves as custodian and provides us with fund accounting and financial reporting services.

For the years ended September 30, 2021, 2020,

and 2019, we incurred $0.6 million, $2.2 million, and $3.3 million in administrator expenses, respectively.

Management Structure

November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021.

management structure replaced the investment management and administration agreements with MCC Advisors, which expired on December 31,

The board approved the establishment of a committee, consisting of Arthur Ainsberg, Karin Hirtler-Garvey, Lowell Robinson and Howard

Amster, to oversee the transition to the internalized management structure.

lead the internalized management team, the board appointed David Lorber, who has served as an independent director of the Company since

April 2019, as interim Chief Executive Officer and Ellida McMillan, who previously served as Chief Financial Officer and Chief Operating

Officer of Alcentra Capital Corporation, a NASDAQ-traded BDC, from April 2017 until it merged into Crescent Capital BDC, Inc.

2020, as Chief Financial Officer of the Company, each effective January 1, 2021.

Lorber is paid an annual base salary of $425,000,

McMillan is paid an annual base salary of $300,000, and each is eligible for one or more discretionary cash bonuses.

internalized management team is responsible for the day-to-day management and operations of the Company, under the oversight of the board.

The internalized management team presently consists of 4 investment professionals and 7 employees/consultants overall.

The Company retained

Alaric Compliance Services, LLC, whose officer serves as the Company’s Chief Compliance Officer.

As discussed above, the Company

has also entered into a fund accounting servicing agreement and an administration servicing agreement on customary terms with U.S.

which serves as the Company’s administrator.

have elected to be regulated as a BDC under the 1940 Act.

The 1940 Act contains prohibitions and restrictions relating to transactions

between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters and requires that a majority

of the directors be persons other than “interested persons”, as that term is defined in the 1940 Act.

In addition, the 1940

Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved

by “a majority of our outstanding voting securities.”

a BDC, we are required to meet an asset coverage ratio, reflecting the value of our total assets to our total senior securities, which

include all of our borrowings and any preferred stock we may issue in the future, of at least 200%.

However, in March 2018, the Small

Business Credit Availability Act (the “SBCA”) modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage

it may incur from 200% to 150%, if certain requirements are met.

Under the 1940 Act, we are allowed to increase our leverage capacity

if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so.

If we receive

stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval.

Alternatively, the

1940 Act allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become

effective on the one-year anniversary of such approval.

In either case, we would be required to make certain disclosures on our website

and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage,

and risks related to leverage.

The Company has not sought stockholder or independent director approval to reduce its coverage ratio to

On March 23, 2018, the SBCA was signed into law and, among other things, instructs the SEC to issue rules or amendments to rules allowing BDCs to use the same registration, offering and communication processes that are available to operating companies.

The rules and amendments specified by the SBCA became self-implementing on March 24, 2019.

On April 8, 2020, the SEC adopted rules and amendments to implement certain provisions of the SBCA (the “Final Rules”) that, among other things, modify the registration, offering, and communication processes available to BDCs relating to:

(i) the shelf offering process to permit the use of short-form registration statements on Form N-2 and incorporation by reference;

March 23, 2018, the SBCA was signed into law and, among other things, instructs the SEC to issue rules or amendments to rules allowing

BDCs to use the same registration, offering and communication processes that are available to operating companies.

The rules and amendments

specified by the SBCA became self-implementing on March 24, 2019.

On April 8, 2020, the SEC adopted rules and amendments to implement

certain provisions of the SBCA (the “Final Rules”) that, among other things, modify the registration, offering, and communication

processes available to BDCs relating to:

(i) the shelf offering process to permit the use of short-form registration statements on Form

N-2 and incorporation by reference;

(ii) the ability to qualify for well-known seasoned issuer status;

(iii) the immediate or automatic effectiveness of certain filings made in connection with continuous public offerings;

and (iv) communication processes and prospectus delivery.

(iii) the immediate or automatic

effectiveness of certain filings made in connection with continuous public offerings;

and (iv) communication processes and prospectus

In addition, the SEC adopted rules that will require BDCs to comply with certain structured data and inline XBRL requirements.

The Final Rules generally became effective on August 1, 2020, except that a BDC eligible to

file short-form registration statements on Form N-2, like the Company, must comply with the Inline XBRL structure data requirements for its financial statements, registration statement cover page, and certain prospectus information by August 1, 2022

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by the SEC.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets.

The Final Rules generally became effective on August 1, 2020, except that a BDC eligible to file short-form registration statements on

Form N-2, like the Company, must comply with the Inline XBRL structured data requirements for its financial statements, registration

statement cover page, and certain prospectus information by August 1, 2022.

may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior

approval of our directors who are not interested persons and, in some cases, prior approval by the SEC.

the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred

to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s

total assets.

The principal categories of qualifying assets relevant to our business are the following:

(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.

An eligible portfolio company is defined in the 1940 Act as any issuer which:

▪ is organized under the laws of, and has its principal place of business in, the United States;

▪ is not an investment company (other than a small business investment company wholly owned by the Company) or a company that would be an investment company but for certain exclusions under the 1940 Act;

▪ satisfies either of the following:

• has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange;

• is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company.

(2) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

(3) Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities.

(4) Securities of any eligible portfolio company which we control.

(5) Securities purchased in a private transaction from a U.S.

issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

(6) Cash, cash equivalents, U.S.

Government securities or high-quality debt securities maturing in one year or less from the time of investment.

The regulations defining and interpreting qualifying assets may change over time.

We may adjust our investment focus needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.

Managerial Assistance to Portfolio Companies

A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in “Regulation — Qualifying Assets” above.

However, in order to count portfolio securities as qualifying assets for the purpose of the 70% requirement, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance.

Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such managerial assistance.

Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary Investments

Pending investment in other types of “qualifying assets”, as described above, our investments may consist of cash, cash equivalents, U.S.

Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets.

Typically, we will invest in highly rated commercial paper, U.S.

(1) Securities

purchased in transactions not involving any public offering from the issuer of such securities,

which issuer (subject to certain limited exceptions) is an eligible portfolio company, or

from any person who is, or has been during the preceding 13 months, an affiliated person

of an eligible portfolio company, or from any other person, subject to such rules as may

be prescribed by the SEC.

An eligible portfolio company is defined in the 1940 Act as any

issuer which:

organized under the laws of, and has its principal place of business in, the United States;

not an investment company (other than a small business investment company wholly owned by

the Company) or a company that would be an investment company but for certain exclusions

under the 1940 Act;

either of the following:

a market capitalization of less than $250 million or does not have any class of securities

listed on a national securities exchange;

controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a

controlling influence over the management or policies of the eligible portfolio company,

and, as a result thereof, the BDC has an affiliated person who is a director of the eligible

portfolio company.

(2) Securities

of an eligible portfolio company purchased from any person in a private transaction if there

is no ready market for such securities and we already own 60% of the outstanding equity of

the eligible portfolio company.

(3) Securities

received in exchange for or distributed on or with respect to securities described above,

or pursuant to the exercise of warrants or rights relating to such securities.

(4) Securities

of any eligible portfolio company which we control.

(5) Securities

purchased in a private transaction from a U.S.

issuer that is not an investment company or

from an affiliated person of the issuer, or in transactions incident thereto, if the issuer

is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the

purchase of its securities was unable to meet its obligations as they came due without material

assistance other than conventional lending or financing arrangements.

(6) Cash, cash

equivalents, U.S.

Government securities or high-quality debt securities maturing in one year

or less from the time of investment.

regulations defining and interpreting qualifying assets may change over time.

We may adjust our investment focus needed to comply with

and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.

Assistance to Portfolio Companies

BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making

investments in the types of securities described in “Regulation —

Qualifying Assets”

However, in order to count

portfolio securities as qualifying assets for the purpose of the 70% requirement, the BDC must either control the issuer of the securities

or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant

managerial assistance.

Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC

will satisfy this test if one of the other persons in the group makes available such managerial assistance.

Making available managerial

assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide,

and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and

policies of a portfolio company.

investment in other types of “qualifying assets”, as described above, our investments may consist of cash, cash equivalents,

Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to,

collectively, as temporary investments, so that 70% of our assets are qualifying assets.

Typically, we will invest in highly rated commercial

Government agency notes, U.S.

Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S.

Treasury bills or in repurchase agreements relating to such securities that are fully collateralized

by cash or securities issued by the U.S.

Government or its agencies.

A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects

an agreed-upon interest rate.

There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements.

However, certain diversification tests in order to qualify as a RIC for U.S.

federal income tax purposes will typically require us to limit the amount we invest with any one counterparty.

Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after each such issuance.

In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our stockholders or the repurchasing of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage.

For a discussion of the risks associated with leverage, see “Item 1A.

Risk Factors—Risks Related to our Business—If we use borrowed funds to make investments or fund our business operations, we will be exposed to risks typically associated with leverage which will increase the risk of investing in us.”

Code of Ethics

We and MCC Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions.

Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements.

The code of ethics is available at our website, www.medleycapitalcorp.com , and is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov .

We are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information.

The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.

Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our stockholders may become available to us.

We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).

We restrict access to nonpublic personal information about our stockholders to our investment adviser’s employees with a legitimate business need for the information.

A repurchase agreement involves the purchase by an investor, such

as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price

which is greater than the purchase price by an amount that reflects an agreed-upon interest rate.

There is no percentage restriction

on the proportion of our assets that may be invested in such repurchase agreements.

However, certain diversification tests that must

be met in order to qualify as a RIC for U.S.

federal income tax purposes will typically require us to limit the amount we invest with

any one counterparty.

We will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock

if our asset coverage, as defined in the 1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after

each such issuance.

In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from

making distributions to our stockholders or the repurchasing of such securities or shares unless we meet the applicable asset coverage

ratios at the time of the distribution or repurchase.

We may also borrow amounts up to 5% of the value of our total assets for temporary

or emergency purposes without regard to asset coverage.

For a discussion of the risks associated with leverage, see “Item 1A.

Factors—Risks Related to our Business—If we use borrowed funds to make investments or fund our business operations, we will

be exposed to risks typically associated with leverage which will increase the risk of investing in us.”

have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts

certain personal securities transactions.

Personnel subject to each code may invest in securities for their personal investment accounts,

including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements.

The code of ethics is available at our website, www.phenixfc.com , and is available on the EDGAR Database on the SEC’s Internet

site at http://www.sec.gov .

are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information.

The following information

is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we

may share information with select other parties.

we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of

our stockholders may become available to us.

We do not disclose any nonpublic personal information about our stockholders or former stockholders

to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or

third party administrator).

restrict access to nonpublic personal information about our stockholders to our employees with a legitimate business need for the information.

We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.

Proxy Voting Policies and Procedures

We have delegated our proxy voting responsibility to MCC Advisors.

The Proxy Voting Policies and Procedures of MCC Advisors are set forth below.

The guidelines are reviewed periodically by MCC Advisors and our independent directors, and, accordingly, are subject to change.

MCC Advisors is registered with the SEC as an investment adviser under the Advisers Act.

As an investment adviser registered under the Advisers Act, MCC Advisors will have fiduciary duties to us.

As part of this duty, MCC Advisors recognizes that it must vote client securities in a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders.

MCC Advisors’ Proxy Voting Policies and Procedures have been formulated to ensure decision-making consistent with these fiduciary duties.

These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

Proxy Policies

MCC Advisors evaluates routine proxy matters, such as proxy proposals, amendments or resolutions on a case-by-case basis.

Routine matters are typically proposed by management and MCC Advisors will normally support such matters so long as they do not measurably change the structure, management control, or operation of the corporation and are consistent with industry standards as well as the corporate laws of the state of incorporation.

MCC Advisors also evaluates non-routine matters on a case-by-case basis.

Non-routine proposals concerning social issues are typically proposed by stockholders who believe that the corporation’s internally adopted policies are ill-advised or misguided.

If MCC Advisors has determined that management is generally socially responsible, MCC Advisors will generally vote against these types of non-routine proposals.

Non-routine proposals concerning financial or corporate issues are usually offered by management and seek to change a corporation’s legal, business or financial structure.

MCC Advisors will generally vote in favor of such proposals provided the position of current stockholders is preserved or enhanced.

Non-routine proposals concerning stockholder rights are made regularly by both management and stockholders.

They can be generalized as involving issues that transfer or realign board or stockholder voting power.

MCC Advisors typically would oppose any proposal aimed solely at thwarting potential takeovers by requiring, for example, super-majority approval.

At the same time, MCC Advisors believes stability and continuity promote profitability.

MCC Advisors’ guidelines in this area seek a balanced view and individual proposals will be carefully assessed in the context of their particular circumstances.

If a vote may involve a material conflict of interest, prior to approving such vote, MCC Advisors must consult with its Chief Compliance Officer to determine whether the potential conflict is material and if so, the appropriate method to resolve such conflict.

If the conflict is determined not to be material, MCC Advisors’ employees shall vote the proxy in accordance with MCC Advisors’ proxy voting policy.

Proxy Voting Records

You may obtain information about how we voted proxies by making a written request for proxy voting information to:

Chief Compliance Officer

Medley Capital Corporation

280 Park Avenue, 6th Floor East

New York, NY 10017

Under the 1940 Act, we are not generally able to issue and sell our common stock at a price below NAV per share.

We may, however, issue and sell our common stock, at a price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at a price below the current NAV of the common stock if our board of directors determines that such sale is in our best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months.

In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities.

However, we currently do not have the requisite stockholder approval, nor do we have any current plans to seek stockholder approval, to sell or issue shares of our common stock at a price below NAV per share.

In addition, at our 2012 Annual Meeting of Stockholders we received approval from our stockholders to authorize us, with the approval of our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set forth in the proxy statement.

Voting Policies and Procedures

Proxy Voting Policies and Procedures are set forth below.

The guidelines are reviewed periodically by management and our independent

directors, and, accordingly, are subject to change.

policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6

under, the Advisers Act.

proxy voting decisions are made by our investment professionals, who review on a case- by-case basis each proposal submitted to a shareholder

vote to determine its impact on the portfolio securities held by the Company.

Although the Company generally votes against proposals

that may have a negative impact on our portfolio securities, we may vote for such a proposal if there exists compelling long-term reasons

We generally do not believe it is necessary to engage the services of an independent third party to assist in issue analysis

and vote recommendation for proxy proposals.

Under certain circumstances and when deemed in the best interests of shareholders, the Company

may, in the discretion of its officers, refrain from exercising its proxy voting right for a particular decision.

ensure that our vote is not the product of a conflict of interest, we require that:

(i) anyone involved in the decision making process

disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with

any interested party regarding a proxy vote;

and (ii) employees involved in the decision making process or vote administration are prohibited

from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties, unless such employee

has received pre-approval from our Chief Compliance Officer.

Voting Records

You may obtain

information about how we voted proxies by making a written request for proxy voting information to:

Chief Compliance

Avenue, 10 th Floor

the 1940 Act, we are not generally able to issue and sell our common stock at a price below NAV per share.

We may, however, issue and

sell our common stock, at a price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire

such common stock, at a price below the current NAV of the common stock if our board of directors determines that such sale is in our

best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such

sales within the preceding 12 months.

In any such case, the price at which our securities are to be issued and sold may not be less than

a price which, in the determination of our board of directors, closely approximates the market value of such securities.

currently do not have the requisite stockholder approval, nor do we have any current plans to seek stockholder approval, to sell or issue

shares of our common stock at a price below NAV per share.

addition, at our 2012 Annual Meeting of Stockholders we received approval from our stockholders to authorize us, with the approval of

our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one

or more offerings, subject to certain conditions as set forth in the proxy statement.

Such authorization has no expiration.

We expect to be periodically examined by the SEC for compliance with the 1940 Act.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.

Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

We and MCC Advisors adopted written policies and procedures reasonably designed to prevent violation of the federal securities laws, and will review these policies and procedures annually for their adequacy and the effectiveness of their implementation.

We and MCC Advisors have designated a Chief Compliance Officer to be responsible for administering the policies and procedures.

Election to Be Taxed as a RIC

As a BDC, we have elected and qualified to be treated as a RIC under Subchapter M of the Code.

As a RIC, we generally will not have to pay corporate-level U.S.

federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends.

To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below).

In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the “Distribution Requirement”).

Taxation as a RIC

As a RIC, if we satisfy the Distribution Requirement, we will not be subject to U.S.

federal income tax on the portion of our investment company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we timely distribute to stockholders.

to be periodically examined by the SEC for compliance with the 1940 Act.

are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.

Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising

from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s

adopted written policies and procedures reasonably designed to prevent violation of the federal securities laws, and will review these

policies and procedures annually for their adequacy and the effectiveness of their implementation.

We have designated a Chief Compliance

Officer to be responsible for administering the policies and procedures.

to Be Taxed as a RIC

have elected and intend to qualify annually to be treated as a RIC under Subchapter M of the Code.

As a RIC, we generally will not have

to pay corporate-level U.S.

federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders

as dividends.

To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements

(as described below).

In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment

company taxable income,”

which is generally our net ordinary income plus the excess of realized net short-term capital gains over

realized net long-term capital losses (the “Distribution Requirement”).

a RIC, if we satisfy the Distribution Requirement, we will not be subject to U.S.

federal income tax on the portion of our investment

company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we timely

distribute to stockholders.

We will be subject to U.S.

federal income tax at regular corporate rates on any net income or net capital gain not distributed to our stockholders.

Medley Capital will be subject to a nondeductible U.S.

federal excise tax of 4% on undistributed income if it does not distribute at least the sum of 98% of its ordinary income in any calendar year, 98.2% of its capital gain net income for each one-year period ending on October 31, and any income and capital gain net income that the Company recognized in preceding years, but were not distributed during such years, and on which the Company did not pay U.S.

federal income tax at regular corporate rates on any net income or net capital

gain not distributed to our stockholders.

will be subject to a nondeductible U.S.

federal excise tax of 4% on undistributed income if we do not distribute at least the sum of

98% of our ordinary income in any calendar year, 98.2% of our capital gain net income for each one-year period ending on October 31,

and any income and capital gain net income that we recognized in preceding years, but were not distributed during such years, and on

which we did not pay U.S.

federal income tax.

Depending on the level of investment company taxable income (“ICTI”) earned in a tax year and the amount of net capital gains recognized in such tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year.

In order to eliminate our liability for income tax, and to the extent necessary to maintain our qualification as a RIC, any such carryover ICTI and net capital gains must be distributed before the end of that next tax year through a dividend declared prior to the 15th day of the 9th month after the close of the taxable year in which such ICTI was generated.

To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for U.S.

federal excise tax purposes, the Company accrues U.S.

federal excise tax, if any, on estimated excess taxable income as taxable income is earned.

In order to qualify as a RIC for U.S.

Depending on the level of investment company taxable income (“ICTI”) earned

in a tax year and the amount of net capital gains recognized in such tax year, we may choose to carry forward ICTI in excess of current

year dividend distributions into the next tax year.

In order to eliminate our liability for income tax, and to the extent necessary to

maintain our qualification as a RIC, any such carryover ICTI and net capital gains must be distributed before the end of that next tax

year through a dividend declared prior to the 15th day of the 9th month after the close of the taxable year in which such ICTI was generated.

To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend

distributions for U.S.

federal excise tax purposes, we accrue U.S.

federal excise tax, if any, on estimated excess taxable income as

taxable income is earned.

to qualify as a RIC for U.S.

federal income tax purposes, we must, among other things:

• qualify to be treated as a BDC under the 1940 Act at all times during each taxable year;

• derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in “qualified publicly traded partnerships” (partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income) (the “90% Income Test”);

• diversify our holdings so that at the end of each quarter of the taxable year:

• at least 50% of the value of our assets consists of cash, cash equivalents, U.S.

government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer;

• no more than 25% of the value of our assets is invested in the securities, other than U.S.

government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded partnerships (the “Diversification Tests”).

We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income and franchise or withholding liabilities.

Any underwriting fees paid by us are not deductible.

We may be required to recognize taxable income in circumstances in which we do not receive cash.

For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year.

Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Distribution Requirement, even though we will not have received any corresponding cash amount.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements.

However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met.

See “Business — Regulation — Senior Securities.” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the Diversification Tests.

If we dispose of assets in order to meet the Distribution Requirement or the excise tax requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

Some of the income and fees that we may recognize will not satisfy the 90% Income Test.

In order to ensure that such income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities treated as corporations for U.S.

to be treated as a BDC under the 1940 Act at all times during each taxable year;

in each taxable year at least 90% of our gross income from dividends, interest, payments

with respect to certain securities loans, gains from the sale of stock or other securities,

or other income derived with respect to our business of investing in such stock or securities,

and net income derived from interests in “qualified publicly traded partnerships”

(partnerships that are traded on an established securities market or tradable on a secondary

market, other than partnerships that derive 90% of their income from interest, dividends

and other permitted RIC income) (the “90% Income Test”);

our holdings so that at the end of each quarter of the taxable year:

least 50% of the value of our assets consists of cash, cash equivalents, U.S.

securities, securities of other RICs, and other securities if such other securities of any

one issuer do not represent more than 5% of the value of our assets or more than 10% of the

outstanding voting securities of the issuer;

more than 25% of the value of our assets is invested in the securities, other than U.S.

securities or securities of other RICs, of one issuer or of two or more issuers that are

controlled, as determined under applicable tax rules, by us and that are engaged in the same

or similar or related trades or businesses or in the securities of one or more qualified

publicly traded partnerships (the “Diversification Tests”).

We may invest

in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income

and franchise or withholding liabilities.

underwriting fees paid by us are not deductible.

We may be required to recognize taxable income in circumstances in which we do not receive

For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as

debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in

income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing

such income is received by us in the same taxable year.

Because any original issue discount accrued will be included in our investment

company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the

Distribution Requirement, even though we will not have received any corresponding cash amount.

we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy the Distribution Requirement.

However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior

securities are outstanding unless certain “asset coverage”

tests are met.

See “Business —

Regulation —

Senior Securities.”

Moreover, our ability to dispose of assets to satisfy the Distribution Requirement may be limited by (1) the

illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the Diversification

If we dispose of assets in order to meet the Distribution Requirement or avoid the imposition of excise tax, we may make such

dispositions at times that, from an investment standpoint, are not advantageous.

of the income and fees that we may recognize will not count towards satisfaction of the 90% Income Test.

In order to ensure that such

income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may be required to recognize such income

and fees indirectly through one or more entities treated as corporations for U.S.

federal income tax purposes.

Such corporations will be required to pay corporate level U.S.

federal income tax on their earnings, which ultimately will reduce our return on such income and fees.

Failure to Qualify as a RIC

If we were unable to continue to qualify for treatment as a RIC, we would be subject to U.S.

federal income tax on all of our taxable income at regular corporate rates.

Such corporations will

be required to pay corporate level U.S.

federal income tax on their earnings, which ultimately will reduce our return on such income

to Qualify as a RIC

we were unable to continue to qualify for treatment as a RIC, we would be subject to U.S.

federal income tax on all of our taxable income

at regular corporate rates.

We would not be able to deduct distributions to stockholders, nor would they be required to be made.

Distributions, including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits.

Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction.

Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain.

If we fail to qualify as a RIC for a period greater than two taxable years, to qualify as a RIC in a subsequent year we may be subject to regular corporate level U.S.

federal income tax on any net built-in gains with respect to certain of our assets ( i.e.

, the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five years.

Company Investments

Certain of our investment practices are subject to special and complex U.S.

federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower taxed long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not qualify as good income for purposes of the 90% annual gross income requirement described above.

We will monitor our transactions and may make certain tax elections and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a RIC.

Investments we make in securities issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax rules that will affect the amount, timing and character of distributions to stockholders.

For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we will generally be required to accrue daily as income a portion of the discount and to distribute such income each year to avoid U.S.

Distributions,

including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to

the extent of our current and accumulated earnings and profits.

Subject to certain limitations under the Code, corporate distributees

would be eligible for the dividends received deduction.

Distributions in excess of our current and accumulated earnings and profits would

be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be

treated as a capital gain.

If we fail to qualify as a RIC for a period greater than two taxable years, to qualify as a RIC in a subsequent

year we may be subject to regular corporate level U.S.

federal income tax on any net built-in gains with respect to certain of our assets

, the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with

respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five

of our investment practices are subject to special and complex U.S.

federal income tax provisions that may, among other things, (1) disallow,

suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower

taxed long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert

ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain

without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed

to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not qualify

as good income for purposes of the 90% Income Test described above.

We will monitor our transactions and may make certain tax elections

and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a

we make in securities issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax

rules that will affect the amount, timing and character of distributions to stockholders.

For example, if we hold debt obligations that

are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases,

with increasing interest rates or issued with warrants), we will generally be required to accrue daily as income a portion of the discount

and to distribute such income each year to avoid U.S.

federal income and excise taxes.

Since in certain circumstances we may recognize income before or without receiving cash representing

such income, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for maintaining RIC tax treatment and for avoiding U.S.

Since in certain circumstances we may recognize

income before or without receiving cash representing such income, we may have difficulty making distributions in the amounts necessary

to satisfy the requirements for maintaining RIC tax treatment and for avoiding U.S.

federal income and excise taxes.

Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements.

If we are not able to obtain cash from other sources, we may fail to qualify for tax treatment as a RIC and thereby be subject to corporate-level U.S.

Accordingly, we

may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce

new investment originations to meet these distribution requirements.

If we are not able to obtain cash from other sources, we may fail

to qualify for tax treatment as a RIC and thereby be subject to corporate-level U.S.

federal income tax.

Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss.

Such gain or loss generally will be long term or short term, depending on how long we held a particular warrant.

In the event we invest in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities.

or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be

treated as capital gain or loss.

Such gain or loss generally will be long term or short term, depending on how long we held a particular

the event we invest in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities.

In that case, our yield on those securities would be decreased.

We do not expect to satisfy the requirements necessary to pass through to our stockholders their share of the foreign taxes paid by us.

If we purchase shares in a ‘‘passive foreign investment company’’ (a ‘‘PFIC’’), we may be subject to U.S.

federal income tax on a portion of any ‘‘excess distribution’’ or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders.

Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such distributions or gains.

If we invest in a PFIC and elect to treat the PFIC as a ‘‘qualified electing fund’’ under the Code (a ‘‘QEF’’), in lieu of the foregoing requirements, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us.

Alternatively, we can elect to mark-to-market at the end of each taxable year our shares in a PFIC;

in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income.

Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% U.S.

We do not expect to satisfy the requirements necessary to pass through

to our stockholders their share of the foreign taxes paid by us.

we purchase shares in a “passive foreign investment company’’

(a “PFIC’’), we may be subject to U.S.

federal income tax on a portion of any “excess distribution’’

or gain from the disposition of such shares even if such

income is distributed as a taxable dividend by us to our stockholders.

Additional charges in the nature of interest may be imposed on

us in respect of deferred taxes arising from such distributions or gains.

If we invest in a PFIC and elect to treat the PFIC as a “qualified

electing fund’’

under the Code (a “QEF’’), in lieu of the foregoing requirements, we will be required to

include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed

Alternatively, we may be able to elect to mark-to-market at the end of each taxable year our shares in certain PFICs;

case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value

to the extent it does not exceed prior increases included in income.

Under either election, we may be required to recognize in a year

income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will

nevertheless be subject to the Distribution Requirement and will be taken into account for purposes of the 4% U.S.

federal excise tax.

Income inclusions from a QEF will be ‘‘good income’’ for purposes of the 90% Income Test provided that they are derived in connection with our business of investing in stocks and securities or the QEF distributes such income to us in the same taxable year in which the income is included in our income.

inclusions from a QEF will be “good income’’

for purposes of the 90% Income Test provided that they are derived in

connection with our business of investing in stocks and securities or the QEF distributes such income to us in the same taxable year

in which the income is included in our income.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business